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]

Thursday, February 11, 1999

• 0901

[English]

The Chairman (Mr. Pat O'Brien (London—Fanshawe, Lib.)): Colleagues, as is our preferred course, I would like to begin the meeting on time. We have members present from both the opposition and government, so we'll begin. I know some other colleagues will be joining us very shortly.

It's my pleasure today to welcome to the Standing Committee on National Defence and Veterans Affairs the Auditor General, Mr. Desautels. Welcome, sir. It's nice to see you again. We have read with interest your submissions as they relate to defence. We'd certainly welcome you now to make whatever statement you would like, and I assume you would then be available for some questions.

Mr. L. Denis Desautels (Auditor General of Canada, Office of the Auditor General of Canada): Thank you very much, Mr. Chairman, for providing us with the opportunity to meet with the committee and discuss in particular chapter 4 of our 1998 report. This chapter focuses on the purchase of major capital equipment by the Department of National Defence.

With me today is Mr. David Rattray and Mr. Peter Kasurak. They are respectively assistant auditor general and principal responsible for National Defence matters. I'm quite fortunate that both of them have a long history of auditing National Defence, so I think they will be able to help the committee with your questions.

In chapter 4 we reported that although the equipment projects we audited were likely to meet cost and performance objectives, affordability problems meant that low-end capability was being purchased or that less equipment was bought than needed, or both. We also found that management did not conduct adequate analyses to support its decisions, often considered only a single option, and did not meet our criteria for risk management.

As you recall, we published another chapter on equipping and modernizing the Canadian Forces at the same time as we published this chapter on individual capital projects. The main finding of that chapter was that DND's capital budget could not support the multi-purpose combat force being planned by the department. Consequently, the department agreed that hard choices needed to be made regarding its policy, its equipment, or both.

The public accounts committee held hearings on both chapters and recommended that the department take measures to correct shortcomings in its management processes. The committee asked the department to submit an implementation timetable by the end of March 1999. The public accounts committee also called on the department to improve its annual performance report by including a comprehensive defence review and assessment this fall. In addition, the committee requested that the department include its long-term capital plan and demonstrate how well it is meeting its capability goals.

The recommendations of the public accounts committee addressed the central points made in these two chapters, but more remains to be done. As this committee knows from its own work on military conditions of service, the defence budget is critically stretched and serious deficiencies exist in many budget items.

This has had a ripple effect on capital projects, leading us to several concerns. If platforms are not fully equipped for combat or do not meet the stated military requirements, then the value for money in the purchasing of equipment is in question; it adds urgency to the department's procurement reform initiatives; and, finally, it adds pressure to take shortcuts or to follow management practices that may contribute to poor outcomes.

We would like to address each of these in turn.

[Translation]

Overall, Mr. Chairman, we found that the capital portion of the budget is too small to support the equipment program the Department had planned. The difference could reach $30 billion by 2012.

• 0905

Affordability was a significant constraint for four of the six projects we audited. The Maritime Coastal Defence Vessel project, for example, could buy only two sets of mechanical sweeps for the 12 ships it bought for mine clearing. The Defence Estimates point out that quick mine clearing of the Halifax and Esquimalt routes is a key requirement.

Purchasing partial capabilities results in equipment that may not be useable when the need arises. The Department believes it can fix many of the deficiencies over time, but some—like the limited lift capacity of the Griffon helicopter—are built into the equipment itself.

The committee may wish to review Procurement when it considers the Defence Estimates. It may also wish to ask the Department if gaps it has identified are being closed.

Our chapter also reviewed the Department's efforts to reform the procurement process since 1994. However, DND's process is not unique to itself. It uses the government-wide process established by Public Works and Government Services Canada, the Treasury Board Secretariat, and Industry Canada.

At the time of our audit, National Defence told us that it had concentrated its reform efforts on internal project management and had just begun to address interdepartmental processes. The Department had no implementation plan for reform when we completed the audit, but has since developed an Acquisition Reform Action Plan. This plan would finalize the Department's reform guide that presents best practices. The plan also contains pilot projects to field-test some of these concepts, but many of the pilots will not be completed until September 2000. Moreover, the pilots selected are relatively minor and the Department warns that its plan is "aggressive" and depends on resource availability and the progress of "higher-level government-wide reform."

This relatively modest program might be compared to the Smart Procurement initiative that was developed from the British Strategic Defence Review. The British review took about two years to unfold and was more or less equivalent to our own 1994 White Paper review. It has proceeded, however, to install extensive reforms to the Acquisition Process that may result in a much more integrated government-industry partnership. Rather than using minor projects as pilots for their reform, the British are using what are literally their flagship acquisitions—the future aircraft carrier, the future attack submarine and the Apache helicopter.

Our point is that the British appear to be moving with more energy to address their capital procurement problems. Solving Defence procurement problems involves several departments and requires sustained ministerial attention. The committee may wish to examine this problem further and lend its weight to progress of the problem.

[English]

Mr. Chairman, the audit did raise warning flags with regard to management practices overall. We're concerned that the push to reduce steps in the procurement process, such as with some commercial off-the-shelf purchases, may produce expensive surprises in the future. The Griffon helicopter is one such example. It had problems with electrostatic discharge that could incapacitate soldiers rappelling from it. Even though this helicopter was in service elsewhere, it was not extensively tested by the Canadian Forces for the conditions in which they intended to use it before the contract was signed.

Other practices also require reflection and examination. The Upholder submarine purchase and the NATO flying training program in Canada involved innovative financing. In the case of the submarines, Canada traded the use of its training facilities for these boats. Aircraft for the NATO flying training program are owned by a non-profit corporation, financed by a commercial bond issue, and leased to a second firm that sells services to the department.

• 0910

Such innovative financing has only appeared since our 1998 audit. We therefore have not had the opportunity to audit projects using such financing. We do note, however, that it allows a cash-constrained department to acquire equipment it needs without large immediate cash outlays.

In the case of the NATO flying training, it may also allow the department to access private sector services that may be cheaper than comparable government-delivered services. We have recently begun to audit some of these activities, and our audits will attempt to determine if these practices, first, are the most cost-effective alternative; second, are transparent in that all financing costs are made visible to decision-makers, including any reduction in future revenues to the crown; third, result in all liabilities being correctly portrayed in the Public Accounts of Canada; fourth, increase flexibility of government rather than reduce it through rigid contracts; and finally, are in compliance with the Financial Administration Act and the government's contracting regulations.

We'll begin reporting on some of these projects next fall, and the committee may wish to consider these matters in a future agenda.

In conclusion, Mr. Chairman, we think the need to address the disparity between the defence capital budget and the department's acquisition plans is an urgent and pressing necessity. I would encourage the committee to consider this question when it next reviews the estimates. The committee might also consider addressing in future hearings the department's efforts to reform its acquisition process and related innovative financing activities.

Mr. Chairman, that concludes my opening statement. My colleagues and I would be pleased to answer the committee's questions.

The Chairman: Thank you very much, Mr. Desautels.

We'll go to the committee for questions. I'm sure there are some.

Mr. Hanger.

Mr. Art Hanger (Calgary Northeast, Ref.): I apologize first, sir, for coming into the committee late. I know I missed a bit of your presentation here, but I do have questions relating to your report filed in reference to military procurement.

You made mention of the Griffon helicopter, that there was a substantial problem with the static electricity build-up, and from what I can understand, that there wasn't any clear resolution to that problem. Have you had an opportunity since to look at that procurement and determine if it's fixable?

Mr. Peter Kasurak (Principal, Audit Operations Branch, Office of the Auditor General of Canada): No, Mr. Chairman, we haven't returned to the department to find out if they have resolved that problem yet.

Mr. Art Hanger: It's clear from your report that it was very limited in its capability, given the fact that communications were a problem because of static build-up, that even to dispatch troops from the copter was a problem and limited its use. Can these problems be rectified? It was a major procurement; I think there were 100 such units. Is it something that is fixable?

Mr. Peter Kasurak: Some of the problems we identified with the Griffon helicopter are fixable or may be fixable. The electrostatic discharge is one that's in the grey zone, and we won't find out until we do follow up ourselves on the audit whether it has been fixed or not. But others are really inherent to the aircraft itself.

As we know, it's a commercial pattern aircraft, and it has limited lift capability. When the department selected this aircraft it knew it would not perform some of the things it identified as military requirements, one being lift of at least 5,000 pounds. The Griffon can only lift 3,100 pounds, and that's not fixable; that's inherent in a buy.

So the surprise that went along with that was that the department expected it to be able to lift its new lightweight gun and be able to deploy it. The requirement was to be able to move a gun 200 kilometres. As it turned out, the gun was slightly heavier than predicted, and the lift capability of the Griffon was so critically close to the minimal level that it could only lift that gun 25 kilometres, which likely isn't tactically a useful distance.

• 0915

So some problems are solvable; some may be solvable. There are items like radar warning receivers, communications gear, that will have to be retrofitted at some stage as funds become available. In the case of the radio, this is going to cause the department to have to de-install the current radio and install the new TCCCS radio, and we estimated that was going to cost about $10 million. So there are a lot of problems inherent with this sort of buy.

Mr. Art Hanger: Well, there were 100 such helicopters purchased, and obviously the military put forward a statement of requirement right at the outset, before those even hit the production line. I would assume that one such requirement would have been that a gun could have been utilized and that its lift capacity would be x number of pounds or kilograms. Was the initial military statement of requirement adhered to, or was it altered by the defence department, or was it changed in some fashion to reduce the price? I don't understand how the military, or the government, could order 100 helicopters and come up with so many deficiencies.

Mr. Peter Kasurak: Well, Mr. Chairman, it appeared to us what happened was that, first of all, some of the studies on the use of this particular aircraft were actually done after the aircraft had been selected, although slightly before it was contracted for. So there were things done out of order.

The other thing was that there were clearly things in the military requirement both before and after purchase, most notably the lift weight, that the aircraft simply couldn't do. And the department proceeded on that basis. They knew this aircraft could not perform the entire requirement, but they were under budget constraints, so they went ahead anyway. That was the point of the chapter that preceded this one in our report, which was that the budgetary constraints viewed against the force structure the department is trying to acquire imposed some real penalties on it. This is one of them.

Mr. Art Hanger: I guess my last question in reference to this Griffon would be, what value is this purchase to the military if it can't fulfil most of the military requirements? Where does it sit in the big scheme of things? Obviously it was a poor purchase to begin with or it would have fulfilled the requirements. But where does it fit?

Mr. Peter Kasurak: Well, it appears that it will perform troop lift requirements moderately well. The Canadian Forces set what they call a “pacing task” for the purchase. It had to be able to lift a combat team from three separate brigade groups and transport them, I think, 100 kilometres. It can barely do that; it would sell a couple of people short. It can more or less perform the troop lift requirement. It can't do the heavy lift requirement. It can do what they call “lines of communication work”, in other words working in rear areas.

It's doubtful it's going to be a good reconnaissance helicopter. The forces are still investigating how they can use it as a reconnaissance helicopter, but it's a fairly large airplane and that imposes constraints on a reconnaissance mission.

• 0920

Mr. Art Hanger: I happen to have been in Wainwright, and they had some of those aircraft there.

They couldn't use them. They were there for training purposes. They do have a number of troops and that is a training ground, yet they could not use those helicopters. So one would have to ask what value they would be. Obviously they'll never see active service overseas—or will they?

Mr. Peter Kasurak: Well, the department would have to use them if it deployed the brigade group. It has protection kits for one squadron's worth of the aircraft. So if we deployed a brigade group into combat, this is the aircraft that would transport them.

Mr. Art Hanger: Are they reliable?

Mr. Peter Kasurak: We've never looked at the maintainability/reliability of the aircraft, so I can't respond to that question.

Mr. Art Hanger: Thank you.

The Chairman: Yes, Mr. Bertrand.

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): On a point of order, I wonder if Mr. Desautels' speech was made available before his presentation this morning. Did we all get it at the same time?

Mr. Denis Desautels: Yes, I think so.

The Chairman: In answer to that, I'm told by the clerk that he just received it this morning and it was distributed.

Mr. Robert Bertrand: It was just that something Mr. Hanger said rang a bell. When he started his questions he said, “You made mention of the Griffon helicopter”, yet he wasn't here when the Auditor General—

Mr. Art Hanger: The Auditor General's report is what I'm referring to.

Mr. Robert Bertrand: I know, but at the very beginning you said “in your statement”. I presume that's the statement—

Mr. Art Hanger: I said “report”.

Mr. Robert Bertrand: —presented this morning.

Mr. Denis Desautels: Mr. Chair, I can't tell what Mr. Hanger—

The Chairman: I think he's referring to the report.

[Translation]

Mr. Robert Bertrand: Oh, I see.

[English]

The Chairman: All right. Thank you, Mr. Bertrand.

Continuing on the first round, we'll go to the Bloc Québécois, Monsieur Laurin. Then we'll go to Mr. Wood.

[Translation]

Mr. Laurin.

Mr. René Laurin (Joliette, BQ): Mr. Desautels, a few months have gone by since you drafted your report. We have had this report since April 1998.

I had an opportunity to question General Baril about the allegations in your report. To my great surprise, General Baril does not seem to feel there's a problem with the helicopters. He believes the Griffon is a good helicopter, that meets the needs of the army well. In his mind, the Department chose well, and has all the equipment it needs to carry out the missions assigned by the government.

I don't know who to believe anymore. Who is right here? You look at the equipment procured and draft a report in which you raise very worrying questions; you state that the equipment procured may not even meet the standards Defence itself has established. Yet the army says it is satisfied. So what are we to believe?

Mr. Denis Desautels: Mr. Chairman, I believe our report is clear enough. We have on several occasions had the same response, and had an opportunity to discuss the issue with people from DND. There are two important issues here.

First, the standards we use to determine the value of procurements and the value received in exchange for money spent are those established by DND itself. We did not invent new standards. When we state that the Department wanted helicopters with a certain capacity, or vessels with a certain demining capability, we got this straight from DND. The Department itself established its objectives and determined its needs. In conducting our audit, we used departmental requirements as criteria.

Now allow me to deal with the second issue you raised. You say that the armed forces meet the demands made of them by government. That may be true, but it is a somewhat circular argument: the government knows full well what the armed forces can or cannot do. So the demands made on them for certain missions are commensurate with their capability. Only rarely does the government impose a mission for which they are not equipped. So what you say is to some extent true, but the reasoning is somewhat circular.

• 0925

Mr. René Laurin: On the basis of your audit, do you believe that the equipment procurement standards you mentioned are known by the army Chief of Staff, or are they established at lower levels without the general's being aware of them?

[English]

Mr. Peter Kasurak: All capital procurement that is done by the department is done against known requirements, and all senior management are aware of what those are or become aware during the approval process. So the answer is yes.

[Translation]

Mr. René Laurin: In paragraph 4.5 of the Main Points in the April 1998 report, you state:

Tactical studies often did not reflect the way officials said they actually planned to employ equipment.

You also state that the studies were often undertaken by contractors who had an interest in the Department's decision. Could you be more specific?

[English]

Mr. Peter Kasurak: I guess this is one of the weakest points we have identified in the department's management process.

When we started the audit, we would begin with the requirements that had been set by the department. We'd ask what studies they had done. They'd say, well, here are our studies. We'd take those studies and we'd go away and read them.

Then we'd look at the equipment, and one would find, in particular for the helicopter, for the tank upgrade, and for the maritime coastal defence vessel, that there would be a mismatch.

So then we would go back to the department and say, well, what about it? You've defined your requirement here, you've analysed it, but the analysis doesn't support what you bought.

The answer we received on several occasions was, but those studies are no longer reflective of our current thinking of how this equipment would be employed or how the Canadian Forces in general would be employed and we believe the equipment is all right for what we have in mind right now.

It's very hard to actually test that as auditors. But it brings us back to a point we've made elsewhere, that the department has never really defined in terms that you can objectively use to assess its operations what it really thinks its missions and roles are, what its outputs really should be. It stated those in such general terms that it really makes it impossible to evaluate the results.

So one of our perennial recommendations is that the department finish up its combat scenarios and publish them so we could all then have a yardstick against which we could evaluate procurement and other things, like operational readiness.

[Translation]

Mr. René Laurin: Could you be more specific, and give me an actual example of capital procurement? At what level were needs identified, and at what level were the analyses carried out? Where was their lack of objectivity? I would like you to be more specific, so that we can identify who generated what reports.

[English]

Mr. Peter Kasurak: Certainly. There are several examples in the chapter. Perhaps the best one is the Leopard tank. The Leopard tank, as we all know, is a fairly old piece of equipment, and to replace it with a new main battle tank would be quite costly. So many people look at upgrading their tanks.

• 0930

The department did a combat study simulation in which it looked at the combat value of an upgraded tank. It found that even a fully upgraded Leopard C1 would not provide any real additional combat value. DND then proceeded to ask the manufacturer to do a study. The manufacturer did a study of a one-to-one combat situation between a Leopard tank and a T-72, which is a Russian type of tank that would be the most probable enemy tank a Leopard would face. The second study again found that unless you did a complete upgrade, what is called the minimal viable capacity for that tank would not be obtained. The department, however, still decided to go ahead with only a partial upgrade.

When we asked the department what the partial upgrade was based on, we were told that lots of countries are doing this. We asked to be shown the staff studies done by these other countries and to be shown that they had been reviewed and digested. We were told this wasn't possible.

Mr. Chairman, I hope that clarifies, in a distinct example, what we mean in this chapter.

[Translation]

Mr. René Laurin: Why can't we obtain these analyses? Is it because they are too secret, or because they do not exist?

[English]

Mr. Peter Kasurak: I really can't respond to that, Mr. Chairman. One would have to address that to the department. Obviously, we think they should have been shown to us, but we didn't find evidence that the department had them.

[Translation]

Mr. René Laurin: So you believe the analyses do exist?

[English]

Mr. Peter Kasurak: Yes, I'm reasonably sure other countries have conducted such studies. We've seen a few of them ourselves. But we did not see evidence that these had ever been pulled together, digested, and summed up in a way that would justify doing a partial upgrade.

[Translation]

The Chairman: One last question, Mr. Laurin.

Mr. René Laurin: In paragraph 4.49, you refer to a study conducted in August 1992, indicating that "the helicopter purchased could not meet the lift requirements for [the] task with the number of aircraft specified." What study are you referring to? Who conducted that study?

[English]

Mr. Peter Kasurak: This study was carried out by the department in August 1992, just shortly before the contract was let. It was a study that looked at this so-called pacing task of trying to lift a combat team from each brigade. The results are reported here, so this is a departmental study. It was done by the operations research people just prior to purchase.

The Chairman: Okay, thank you.

We'll now proceed to the Liberal members for ten minutes, beginning with Mr. Wood and then Mr. O'Reilly.

Mr. Bob Wood (Nipissing, Lib.): Ten minutes? Mr. Laurin had about an hour and a half.

The Chairman: No, no. Do you want to move to buy the chair a new clock afterwards? That's what the clock said.

[Translation]

I am very fond of Mr. Laurin.

[English]

Mr. Bob Wood: If I have any time left over, Mr. Chairman, I'll share it with my colleague, Mr. O'Reilly. I just have a couple of questions.

Mr. Desautels, your report is critical of a number of areas in which shortcomings have been identified and in which the defence department acquires capital equipment. Several things jumped out at me. For instance, your report states that in some cases DND relies on professional judgments by experts rather than the results of studies or analysis. In another case, you state that there is not adequate monitoring and reporting of project performance, both prior to completion of a product and after it is in use with the forces.

I understand both of these cases, and I agree that these things should be corrected. But from DND's standpoint, I think I can understand why these things happen. If you are faced with a limited budget, you cut corners to meet your objectives. If you trust an expert's opinion when he tells you this is the best product, it's a lot cheaper to go with that opinion than it is to spend time and money on an extensive study. Similarly, with the staff cuts at DND, I suspect that there may not be enough people to monitor project performance in all cases. I'm not saying I agree with that system, but I suspect this is the reality the department is dealing with given its financial situation. Did your people consider that reality when they did this audit? Do you have any recommendations or suggestions on dealing with these problems?

• 0935

Mr. Denis Desautels: Well, Mr. Chairman, the answer is that we have considered that reality. In fact, chapter 3 basically deals with the difficulty of balancing available resources with the needs that DND really has in terms of capital equipment. We are actually very conscious of that dilemma, and chapter 4 picks up from that. It really tries to explain to members what that dilemma can lead to. Therefore, chapter 4 actually picks up on the problems of chapter 3, and it also goes into more detail about the procurement process itself and how well it is managed. There are obviously decisions that are made because of that situation, but in our view they don't lead to optimal value for the money received.

We have nothing against professional judgment. We think it's important in many situations. On the other hand, given the size of some of these acquisitions, and given the fact that we're going to be using this equipment afterwards for many years, we feel the judgment has to be based on a number of pretty key studies that will ensure that we end up making the right decisions. We have to live with those decisions for a long time.

Mr. Peter Kasurak: Mr. Chairman, if I might add to the Auditor General's response in regard to the studies, we did not find that there was a resource shortage that prevented the studies from being done. The studies were done; they were the basis on which we were able to perform the audit. It's just that they were often done after the fact, after the purchase, or they gave results that seemed to be overturned later by what the department told us was professional judgment.

We couldn't match the studies to the procurement decisions. They weren't supportive. It's not a question of them not having the staff to do the studies. There were a lot of very well done studies around these procurements, but they tend to point at problems with them rather than support the decisions.

Mr. David Rattray (Assistant Auditor General, Audit Operations Branch, Office of the Auditor General of Canada): Mr. Chairman, if I can add to that as well, at the hearing before the public accounts committee, the department responded that there is an acquisition reform process underway at this time. DND's intention is to streamline and to free up resources in order to devote more effort to those matters raised in our chapter dealing with proper monitoring, risk management, testing, and evaluations. We're watching carefully as that acquisition reform process occurs to deal with manpower shortages and streamlining processes.

Mr. Bob Wood: I have another quick question.

One of your criticisms has to do with value for money. I agree that we should always get the best equipment for the money we spend. Sticking to my old theme of the realities that DND must deal with, though, as you know, they do have a limited budget. Using a hypothetical situation, if you need a new car, you may want to buy a Cadillac, but you might have to wait five years until you can afford one. You buy something that's a little cheaper but still gets you to where you want to go.

You were critical of some of the purchases because they may not meet the performance capabilities originally set out prior to acquisition. I suspect that, from DND's perspective, it may be better to have that cheaper model than it is to not have any model at all. I know this is kind of a silly, simple example, but I would ask that you respond to what I see as the mentality of the officials making these purchases.

• 0940

Mr. Peter Kasurak: Mr. Chairman, if I might extend this analogy, certainly the department would represent its approach to procurement exactly as the committee member has suggested. But what we found, we think, is more like somebody who needs a two-and-a-half-tonne truck ending up with a Volkswagen Beetle. You can't put the load in it and then you have a real problem. So the general approach is a viable one as long as it's not taken too far, and what we think we're seeing in the audit is instances where it has been taken too far.

When we go back to the previous chapter, to talk about the budget globally, what we're saying is, and officials told us that, hard choices need to be made, not only about individual pieces of equipment but about their entire force structure and approach. So I would agree with the committee that this is the department's approach, but we think it's overextended.

The Chairman: Thank you.

Mr. O'Reilly, then Mr. Bertrand, three minutes.

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.): Thank you very much, Mr. Chairman, and once again I welcome the staff of the Auditor General.

In dealing in public accounts and with the general overall theme of auditing government departments, I notice that there always seems to be a built-in hostility towards the military, and I would like you to explain that to me. Your report seems to play into the sensationalism that the press is looking for.

I detect a note of hostility, so my usual respect for you is starting to dissipate a little. I find that we do as a committee have a renewed commitment to try to restore the morale of the military, try to rebuild it and reshape it, instead of tearing it apart, and your report is best described as playing into the hands of the Reform anti-military movement that seems to come out best during the full moon.

For instance, in business if I bought a tricycle, I'm sure my accountant or my auditor would have phoned me up and at least asked me what the hell it was. So I find that type of thing now has to be corrected in the press—the press play on it—and I'd like your comments on that.

Mr. Denis Desautels: Mr. Chairman, quite obviously I don't agree with the premise of Mr. O'Reilly's question.

As always, we try to be completely objective when we approach a question. We don't have any leanings one way or the other in terms of politics or policy, and I think what we have done in both of those chapters, if you look at chapter 3 and chapter 4, is in fact echo a lot of the frustrations of the people in the military.

In fact, we work very closely with them, we've talked to a lot of them, and I believe we have a good pulse for what the people are thinking, what they're trying to do, and how they're trying to carry out their role. I think when we raise, on the one hand, the dilemma between what we are asking them to do and what we're giving them to do it, we're really raising a question that they're asking themselves every day.

When we talk about the procurement process and how this has been carried out, there's no disagreement on the procurement process between ourselves and what they're saying. Where it gets to be a little dicey is in the question asked by Mr. Wood a few moments ago. In the end there's a judgment call here. They decided to make certain purchases in a certain way. It seems to fly against some of their own internal studies and recommendations, but in the end they're exercising professional judgment. That is something that is difficult to completely criticize, because we think professional judgment has its place.

So on the whole I believe we have a good pulse for what the people in the department really think, and in fact my two colleagues here, as I said at the beginning, have been auditing DND for quite a few years, from back in the 1980s. So we have a good understanding of the place, and I think our report really reflects reality and to a large extent some of the frustrations felt by the military themselves.

• 0945

The Chairman: Thank you, Mr. Desautels. Thanks, Mr. O'Reilly. Now we go to the Conservative Party, Mr. Price, for ten minutes.

Mr. David Price (Compton—Stanstead, PC): It has been an interesting discussion. They brought up a lot of other points. I'll start with the main one that I had in mind. If we look back to the 1994 white paper, we're looking at priorities there that were very clearly set up, first of all with search and rescue helicopters, then maritime helicopters, and then the CF-18 upgrade. What we've seen now, which was announced over the last break, is the CF-18 upgrade. The way it was done is quite bothersome because there's going to be a supplemental cost. There are increased costs, and they're proposing to sell 22 aircraft to fund that. In my mind, and in fact in law, that can't be done, that I know of, because if they sell off surplus equipment, the money has to go back to the general fund and then Parliament would have to give a supplemental budget. Am I not right?

Mr. Peter Kasurak: I believe you're correct, although I also believe that if the department were to arrange such a deal, if you want to put it that way, it would likely be able to get the central agencies involved to concur. Yes, it would complicate it. It's not straightforward.

Mr. David Price: We're talking of something like the Goose Bay set-up and the submarines.

Mr. Peter Kasurak: Yes, but it's probably feasible. I think your question goes to the question of priorities that we raised in both these chapters, where we found that it was really difficult to determine past a certain point how capital was being allocated, because there are no combat scenarios you can use as a yardstick to tell whether you're above or below in certain sectors and because the deficiency list is so great that we estimate it to be double the funds available. Essentially, what we were told was this is done by negotiation at the highest level in the department. That's it. That's how priorities are actually established.

Mr. David Price: Again, that brings up the point of priorities. When the second priority was clearly the maritime helicopters and now we're looking at the Sea Kings... What we're told now is 70 hours for every one hour of operation in the air. They're serviceable 40% of the time and mission failure is at 50%. Have you looked into what it's costing us to keep those helicopters compared to going ahead with procurement for the new ones?

Mr. Peter Kasurak: No, we haven't specifically looked at that. But there's probably no disagreement in the entire defence community that it would be economical to replace the aircraft now, if not yesterday. I think the department and the minister have said that on several occasions. The problem the department is facing is that—and this is why the buy the CF-18 first rather than the maritime helicopter first—the maritime helicopter, of course, is a big lump of capital—

Mr. David Price: A straight-out purchase.

Mr. Peter Kasurak: —so there is not sufficient room in the capital budget to absorb that right now, whereas for something you can do incrementally and spread out, like the CF-18, there apparently is enough room to squeeze that in. So the budget now is defining the priorities rather than the other way around.

Mr. David Price: Putting on band-aids. We've also heard that the Griffons—of course, there's a group of them in storage—could maybe be retrofitted to be used as shipboard helicopters.

Mr. Peter Kasurak: I'm not aware of that.

Mr. David Price: You haven't heard any of that.

How are we doing on our compatibility with our allies in equipment purchases that we're going ahead with?

• 0950

Mr. Peter Kasurak: That is a fairly complex and multi-level question, as I'm sure the committee is aware. You have to deal with it on at least two levels. One level is the equipment itself and the other is the military formation.

For the projects we studied, at the equipment level there would be few problems if the projects were being completed as planned. The lack of a TCCCS radio to go into the Coyote vehicle and the UTTH is a major interoperability deficiency. They won't be interoperable until that radio goes in as a piece of equipment.

At a higher level, on what we are doing and what the audit has clearly shown, there are gaps appearing in our force structure all the way through. When you go to the department and ask about a gap, they say allies would make it up. The problem is, we now have a layer of these gaps, and we would have to train with an ally pretty extensively to be able to fill those gaps. So it's becoming increasingly problematic at a force structure level.

The equipment itself is interoperable, but the TCCCS radio is our major problem at the moment.

Mr. David Price: Particularly today, let's face it, we're working almost totally with NATO in anything we do, so there has to be compatibility with the Americans, let's say; that's probably the starting point. We've known about it for a long time. In fact we even made the mistake in the previous government on the EH-101, where the equipment that was ordered for the sub-arrays was not compatible with the Americans. So we've had lots of time to correct it, yet we're not moving that quickly.

Have you been suggesting this? We haven't seen a lot of it in the reports.

Mr. Peter Kasurak: No. It wasn't a major thrust of the report, so we don't have a roll-up analysis of it. All we have, as I've said already, are indications of problems throughout.

Mr. David Price: You talked a lot about the risk management, which I agree is a big problem of going too far, too fast without examining...

On the costs involved in these extras, naturally if a set of norms is set out for a particular piece of equipment and it isn't met, the costs should be met by the contractor doing it to bring it up to those norms. But is anything taken into consideration on the cost of that equipment being out of service while they're adding the extras or bring it up to those norms?

Mr. Peter Kasurak: No. That is not accounted for.

Mr. David Price: So we're taking that right off.

Mr. Peter Kasurak: No. That's simply not accounted for.

Mr. David Price: Since this seems to be common and happening more and more, should it not be put into the contract—out of service?

Mr. Peter Kasurak: It certainly is an idea. Usually there are penalties for late delivery or whatnot. But take the MCDV problem, where there was a provision in the contract for testing of the lead vessel, but through contract negotiations that gap was given away. The government received value for what it gave away, but it had a problem downstream and lost seed time on the vessels that were being constructed.

So I think the department tries to cope with this through negotiations, but they are negotiations. There are two parties to them and they don't always get the perfect deal for the crown, as the contractor has to have his say as well.

The Chairman: One final question, Mr. Price.

Mr. David Price: You were saying this morning that solving defence procurement problems involves several departments and requires sustained ministerial attention, and the committee may wish to examine this problem further and lend its weight to progress of the problem. How can we do it?

• 0955

Mr. Denis Desautels: I believe there's a commitment on the part of the department to resolve that. They've made that known to the public accounts committee, for instance. I think showing an interest in this and asking a few questions at the right time in a subsequent hearing might do a lot to keep the department focused on that particular issue. It's more a question of the committee asking a few questions about that.

Mr. David Price: It is one of the unfortunate problems that a committee does not have much in the way of power.

Mr. Denis Desautels: No, but my own experience has been that departments generally try to respond to committee resolutions or recommendations.

Mr. David Price: So that would be the forum you would suggest for resolutions coming out of the committee—suggestions and so on.

Mr. Denis Desautels: Yes. We could also ask them to report on that in their annual performance reports. Every department has to put out a performance report each fall, and that could be one of the elements they could report on.

Mr. David Price: Thank you very much.

The Chairman: Thank you, Mr. Price.

Just before going to a second round, I would like to bring a couple of matters to the attention of the committee members.

On Tuesday, the committee will not meet on its normal day or time because of the budget, which will not allow us to have a useful meeting.

We will next meet a week from today. The plan is to deal with Bill C-61. I understand, from what I'm hearing from the parliamentary secretary in his discussions with the opposition parties, it likely won't take us very long to deal with that bill. I understand there's quite a consensus in support of that bill.

Witnesses who had wanted to meet with us on that bill have now indicated they won't. We'll be dealing with the issue of the merchant marine separately at their request later on. So it's anticipated we will deal with that bill rather quickly on Thursday. If that's the case, we'll then go into a briefing that could take several meetings—our good staffers, researchers, are working on that already—related to procurement. So it's very timely to have the Auditor General here with us today.

That's what's anticipated for next week, colleagues. I would just indicate to you that when we're through with the Auditor General and his staff today, we have a motion before we adjourn to deal with what was discussed at the last meeting.

With those announcements I'll go to a second round of five minutes, starting with Mr. Hanger, please.

Mr. Art Hanger: This question to the Auditor General relates to the process of procurement. My understanding—and you could correct me if I'm misunderstanding this—is if there is a decision to come up with a certain machine, vessel or purchase, a study is done and in the end a statement of requirement is presented—I understand in short form it's called an SOR. These requirements are what the military sets out. Is that correct?

Mr. Peter Kasurak: Yes, sir.

Mr. Art Hanger: Okay. Then it goes before the government, and the government looks at it and makes a decision. In the case of the Griffon—I'll only take that as one example—the statement of requirement can be dumbed down, I understand. The requirement level or point that the military seeks to have can be altered or changed for whatever reason the government may choose. Is that correct?

Mr. Peter Kasurak: From what we saw, what would go into contract specifications and be recommended to Treasury Board ministers would often be quite a bit different, and usually substantially less than what was in the military requirement. So there can be changes. It's obviously not a mechanistic process. What emerged—all too often, we found—didn't fill what had been previously identified as the minimum essential military requirement.

• 1000

Mr. Art Hanger: Okay.

In point 4.73, it states:

The Maritime Coastal Defence Vessel represents an acquisition strategy similar to that for the Griffon helicopter—a platform built to civilian standards and fitted for, but lacking, the necessary mission kit to satisfy the remote mine hunting capability. When it requested approval of the project, the Department informed Treasury Board that it was following a design-to-cost strategy and that the full requirement—specifically, the remote mine hunting capability—was not affordable. The project received approval on that basis.

Like the helicopter—and the auditor makes mention of that in this particular paragraph—the Treasury Board decided for the military that this was not suitable, so they cut back on the requirements and ended up with a product that wasn't suitable.

Mr. Peter Kasurak: No, Mr. Chairman, I don't think that's precisely what we're trying to represent here. What we're trying to say is that what the department proposed to the Treasury Board was an acquisition that did not include the mission kit for this vessel and that Treasury Board ministers approved that.

So it wasn't the Treasury Board rewriting what was coming to them from the department. The department made this proposal to the board itself, which subsequently approved it.

Mr. Art Hanger: Are you saying the defence department rewrote it?

Mr. Peter Kasurak: They chose to go ahead with a buy that didn't include their mission kit.

Mr. Art Hanger: I know, but who rewrote the requirements? That's what I'm asking.

Mr. Peter Kasurak: Well, it would...

Mr. Art Hanger: I mean, there's a lot at stake here.

Mr. Peter Kasurak: Yes.

Mr. Art Hanger: We have $1.2 billion worth of helicopters sitting there, and they can't even train with them. They can't use them in any kind of situation that would be deployable overseas, say. So we have 100 helicopters sitting there, and somebody obviously rewrote the requirements.

I'm wondering who wrote it on the Griffon helicopter and who rewrote it on the MCDVs.

Mr. Peter Kasurak: Certainly these projects were brought forward by the head of their services, so it would have been the chief of staff of the army and the air force in the case of the helicopter, and the chief of staff of the navy in the case of the ship. In the end, senior management of the department, through the defence management committee, approved the entire strategy.

So when you ask who, well, it's senior management of the department corporately that looked at this and went ahead with it.

Mr. Art Hanger: I guess I'm having a hard time understanding that. You have the military, the studies show...and they have all been approved by the military as an SOR necessary to fulfil a certain function. Now you're saying again that the military rewrote its own requirements and submitted it to the Treasury Board?

Mr. Peter Kasurak: They didn't rewrite the requirements. What they did was to buy something that they knew would only fill part of the requirement. Their requirement stands.

Mr. Art Hanger: Why did that happen?

The Chairman: Thank you very much. I think this is some interesting questioning. We'll no doubt want to continue with it.

Our next questioner, for the Liberals, is Monsieur Bertrand.

[Translation]

Mr. Robert Bertrand: I have a question for Mr. Desautels. You know that when the Department divests itself of assets, any profits are paid into the Consolidated Revenue Fund. Do you consider this a good accounting practice?

Mr. Denis Desautels: Mr. Chairman, that is an excellent question. The issue is now being reviewed. Some departments are already allowed to share in profits generated by divestiture of assets.

• 1005

For example, when the Minister of Foreign Affairs sells property, it may keep part of the proceeds of the sale. This measure is to encourage departments and give them an incentive to manage their surplus assets more effectively, and to divest where necessary.

At present, the policy is being reviewed on a government-wide scale. Treasury Board has already granted authorization in some cases, to my mind for good reasons. I believe that departments should indeed be allowed to keep a portion of the proceeds of the sale. This encourages them to manage their surplus assets more effectively.

Mr. Robert Bertrand: You will probably find my next question very difficult to answer. I would like to know how much was raised by selling land, buildings and other departmental assets in the past five years. I would imagine that the proceeds of sales not returned to departments amount to several million dollars.

Mr. Denis Desautels: I would say hundreds of millions of dollars. As you know, a number of military bases have been closed. The Canada Lands Company has been entrusted with selling these assets in an orderly fashion, and the proceeds were paid into the Consolidated Revenue Fund. In cases where the properties could be sold, these closures did generate some revenue for Canada. But the amounts involved are very large indeed, much more than a few million dollars.

Mr. Robert Bertrand: One last brief comment. At the end of chapter 4, you state:

[English]

that in the final analysis you believe DND and the Canadian Forces have acquired world-class equipment that performs exceptionally well.

Mr. Peter Kasurak: Which paragraph are we referring to?

Mr. Robert Bertrand: I think it's in chapter 4.

[Translation]

I don't know whether I'm looking at the same document you are.

I simply want to know whether you still agree with that comment.

Mr. Denis Desautels: I will try to find the comment. You may be quoting the Department's response to our report, at the very end.

The Department's response is at the end of the French version of paragraph 4.

Mr. Robert Bertrand: I see. Forgive me. Thank you.

[English]

The Chairman: Thank you, Mr. Bertrand.

[Translation]

Mr. Laurin, do you have any questions? You have five minutes.

Mr. René Laurin: Of course, Mr. Chairman.

Some honourable members: Oh, oh!

Mr. René Laurin: You stated that capital procurement was in many cases inadequate, particularly in the case of the Griffon helicopter, which you indicate meets neither the established standards nor our needs. As a result, they had to be modified after procurement. The procurement sequence for the Griffon helicopter was short; I believe that the procurement contract will expire in 1999. A number of helicopters have been delivered over a few years.

Were you able to see what was really done in practice? Were the Griffon helicopters actually modified to meets the needs established at the outset?

[English]

Mr. Peter Kasurak: The upgrading or outfitting of the Griffons is ongoing. The department has bought about one-squadron's worth of protection kits. It's trying to acquire radar warning receivers. We've already talked about the need to refit the radios at some point when the TCCCS radio eventually becomes available for it.

• 1010

So this is an ongoing process. Yes, work is continuing. We were aware even during the audit that work at outfitting these airplanes was continuing, but it is sometimes a slow and piecemeal process.

[Translation]

Mr. René Laurin: Were you able to assess the additional costs involved in modifying Griffon helicopters after procurement?

[English]

Mr. Peter Kasurak: Mr. Chairman, the only aspect we looked at was the cost of refitting the TCCCS radio. I believe we say in the chapter it cost about $9 million extra to replace the old radio that was put in the new airplane, but in terms of the other add-ons we haven't looked at that as yet.

[Translation]

Mr. René Laurin: Is the same procedure used to procure original equipment also used to procure additional equipment and accessories?

[English]

Mr. Peter Kasurak: Well, not necessarily. It depends. The add-on equipment is probably not going to be acquired as a major crown project, but probably will be a miscellaneous requirement. So it won't go through the major crown project process. It will be just another government equipment purchase.

[Translation]

Mr. René Laurin: I am trying to establish a logical link here. The government did not want to agree to procurement of original equipment that would have cost too much. So they decided to reduce their requirements and buy lower-priced equipment, while at the same time authorizing the subsequent purchase of additional equipment to turn the helicopter that was bought into the helicopter that was initially turned down. There's something wrong with the logic there. Where did the money come from? These authorizations were perhaps not granted by the same people, or by the same source. This might explain how a helicopter procured at a lower price could be converted by purchasing additional equipment later.

[English]

Mr. Peter Kasurak: I believe there's a third alternative here. It's a question of when the money becomes available.

The problem with the defence capital budget, given the force structures the department is trying to build with the money they've got, is that very large buys have difficulty finding programming space in that budget. They come through and they're very costly and they burn up a lot of money all at once.

Outfitting aircraft, if you do it piecemeal over a long period of time, you can be a little more opportunistic. You can find little spaces in your budget to put things like protection kits and radar warning receivers in, and it comes out of the operations and maintenance budget sometimes, not even capital. So there's the opportunity to do this in the budget rather than different decision-makers.

But it does mean you may have an aircraft for a very long period of time without the combat capability you've spent 90% of your dollars on, and that's our concern.

I don't think there's a lot of inconsistency. I think this is really trying to manage that capital budget space, which is so constrained it makes people do things that may prove to be very costly.

[Translation]

Mr. René Laurin: Mr. Chairman, I'm not very satisfied with the answer I have received regarding costs. What is the difference between procuring equipment at the outset which meets all of your requirements, and doing what is now being done: procuring lower- priced equipment that is later modified to meet the same requirements a few years later? Are there any savings involved? I don't think so. What is the difference in costs? Has anyone looked at that?

[English]

Mr. Peter Kasurak: Well, no, and this is one of our main problems with this particular aircraft buy—the department didn't compare it. The department, when it was faced with this decision, could have bought a different helicopter that could have met its needs, bought fewer of them, and taken that approach. Our criticism of the department is that it didn't do its homework. It didn't study those options. It proceeded on a single-option path, never looking to the left or the right.

• 1015

In the end, we believe that trying to add stuff afterwards is disadvantageous, because you don't really have what you need for a long period of time. You may well be better off with smaller numbers of a more capable thing. At the very least, we would have expected that the department would have looked at the option, but we found it had not. There was no costing of any other options for the UTTH buy, so one of our comments was that we thought there should have been.

[Translation]

The Chairman: Thank you, Mr. Laurin.

[English]

We'll go to Mr. Richardson for five minutes, and then we'll have a third round.

Mr. John Richardson (Perth—Middlesex, Lib.): Thank you, Mr. Chairman.

Since it's a short question period, I'll briefly refer to a couple of things that caught me when you mentioned them earlier. Because of our NATO commitments and the times when we have gone over with NATO, we have moved from one tank to another. The one we have now is one that was developed in the 1960s. We're therefore looking at a chassis that's thirty to forty years out of date. Well, it may not be out of date, but it's certainly old. There have been upgrades on that tank, and it has more patches than my Model T Ford used to have on its tires. It just seems to be add-on after add-on, and it never seems to be the tank that DND really wanted. If you add all the costs together, we probably could have bought a new tank.

An hon. member: That's your government.

Mr. John Richardson: I just think that if we could come up with some kind of support for the army, whether it's through the government or through this committee, it may be a short-term pain for a long-term gain with that piece of equipment. I think we have to start looking at that.

This committee also has to look at giving its full support to seeing that we have the kind of equipment that can be relied on to do the job if we're on the right or left flank as a NATO deployment. I think the soldiers are well trained, but you hear it from them all the time: this tank is worn out. I hope that's not going to be the case. I hope the committee can see some of these things coming forward. As a committee, I hope we can help in some way. By using our moral suasion, I hope we can convince the finance department to assist the defence department to achieve some of these purchases that make sense. In a way, you related that in your practices here.

Certainly, our commitments dictate what we buy. We're given certain commitments through NATO in terms of what we will do and what we're expected to do as a brigade group, what the air division or air configuration can do, and what the navy is to do. We're not in bad shape in the navy. I think it's one of the best navies in the world for the kind of navy we have. But when I look at the land force, we could certainly do a lot better for them.

I appreciate the comments you did make on this, because I do think that to give a nudge to this committee to state what our commitments are forces us to ask if we are prepared to put the money where those commitments are, and to see that we have a balanced operation in National Defence. These fellows have been trying to do it, but they're caught in their own practices. I'd rather see them get a fully developed program underway instead of doing a little bit each year.

Am I right or wrong in the direction you're giving us? I get the feeling this is what you were saying here: longer projections, but full development.

Mr. Denis Desautels: Mr. Chairman, I think the answer to that is, yes, we're on the same wavelength, particularly if you consider what we said in chapter 3, which I think takes a view of the whole situation from a higher level as opposed to looking at specific procurement situations.

• 1020

So yes, there is a dilemma, and we have to make sure it's not causing the department to make decisions it will regret a few years down the road.

Mr. John Richardson: I think we have the drift, and there's an example of that, but that may not be a perfect example.

The Chairman: Thank you. I misspoke myself earlier. Mr. Price, for five minutes, finishes the second round. Then we have time for a third round, and then I want to make sure we deal with our motion. So at about 10:50 a.m. we'll call a halt to the questioning, if that's agreeable.

Mr. Price for five minutes.

Mr. David Price: Thank you, Mr. Chairman.

First of all, if the Griffon was equipped or kitted out for naval operations, what would your opinion be of its operational capability in maritime use?

Mr. Peter Kasurak: Mr. Chairman, I have difficulty imagining how the Griffon could be outfitted for naval operations. It would require the bear-trap mechanism to be fitted to it so it could be winched down to the depth of a destroyer. That would use up a fair bit of its lift capacity. It's a commercial aircraft. It's not militarized, much less navalized, so it would have to be refitted probably to at least a certain extent to deal with salt and corrosion as well as the extra vibration of operating off a frigate. I've never heard it mentioned as a candidate aircraft for navalization.

Mr. David Price: We have heard of it, and I appreciate your answer.

In the end of chapter 4, Mr. Desautels, you mention as the basis of this audit the need for the department to continue to reform its capital equipment acquisition process. There was a draft, an acquisition reform guide, that was supposed to be delivered to you in May, and I was wondering where that's at. Could you talk to us a little bit about it? You've looked at it, I imagine.

It was supposed to be complete by the end of the year, but we haven't heard or seen anything of it.

Mr. Peter Kasurak: The department has given us this acquisition reform plan. It was actually very close to the end of the audit when we received it. Actually it was after the audit, before the hearing.

It lays out a series of possible reform concepts, which are in their reform guide. These are to be tested over the next 18 months through a series of pilot projects. Pilot projects have started. They aren't due to report for some time yet, and so we really don't know beyond that what progress has been made.

Mr. David Price: But in looking at the guide, what feelings did you have about it? Did it look as if they were going in the right direction with it?

Mr. Peter Kasurak: In general, there is nothing specifically in the guide we disagree with. However, as the Auditor General's opening statement remarked, it doesn't have a big top-view, central thrust to it, the way smart procurement does in the United Kingdom, for instance.

It is not aimed at totally revolutionizing the process; it's aimed at making some incremental improvements after a number of years of study. We think there are significant opportunities to be gained. We see problems developing in areas like business-government relations because we have a procurement process that's set up on the basis of competition, but in the defence sector in Canada, indeed in the U.K., you get down to a single supplier.

We don't have the framework to comfortably deal with that and so people cut corners, use special arrangements, sometimes make compromises. Some of our future audits are going to get into that. It's an opportunity area that the department's approach doesn't address. To be fair to the department, because there are a number of other actors involved, they can't address these problems unilaterally.

That's perhaps where a committee such as this one can encourage PWGSC, Industry Canada, Treasury Board Secretariat, as well as DND, to come together. DND, I think, has been pushing, but it has to move with its colleagues, and that always slows things down.

• 1025

Mr. David Price: Okay. Thank you.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Mr. Price.

Colleagues, we'll have time for a third round of questioning by two opposition and two Liberal members, if there are questions.

I see members kind of looking at me, and I've had a couple of comments made to me. Could I just make a point? There's a set of rules this committee operates under. Although it may seem that someone is getting a long time, I go very religiously by the clock. I'm trying to be the straight guy up here who operates impartially.

The rules say that we now go to a third round. We're going to go to Mr. Hanger for five minutes, then the government, then the opposition, and then the government, as per the rules of the committee.

I ask my colleagues' indulgence. I'll try to give everybody a chance.

Mr. John O'Reilly: We were just looking up to see if you were awake.

Some hon. members: Oh, oh!

The Chairman: Then, colleagues, at 10.50 a.m. we're going to thank the Auditor General and deal with an important procedural matter.

So I'm going to go to Mr. Hanger now for five minutes. Mr. Hanger.

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

Paragraph 4.78 of the Auditor General's report refers to the Eryx missile system. Was there a study done on the requirements?

Mr. Peter Kasurak: The short answer is no, there was no specific study done on the Eryx itself. There was a study done that set the doctrinal requirement for a missile that would be man-portable, effective up to 600 metres, and fireable from an enclosed space. So there was an earlier doctrinal study, but there was no study specific to this purchase.

Mr. Art Hanger: Was there a statement of requirement issued for the purchase?

Mr. Peter Kasurak: Yes, the statement of requirement is pretty much as I've just repeated. Those were the key requirements, and that's what was stated.

Mr. Art Hanger: You point out that the military required 1,050 such units for a certain figure. Now, who changed the number again?

Mr. Peter Kasurak: Once again, the department itself changed the number. It did the requirement study, and when it got farther down the road to the purchase decision, it looked at how much budget space it had. It couldn't afford the original requirement, so it reduced the buy. It's as simple as that. It's simply a budgetary decision.

Mr. Art Hanger: But there seems to be the same kind of pattern being applied to the purchase of the Griffon helicopters, to the alterations made to the requirements of the coastal defence vessels, and on and on? Would you not agree?

Mr. Peter Kasurak: Mr. Chairman, the major theme of both chapters is trying to manage under budgetary constraint and the downstream impacts of those constraints.

Mr. Art Hanger: Don't you see something wrong with that kind of development? Here you have tactical helicopters you can't use as tactical helicopters. I find that to be a waste of taxpayers' money, to be honest with you. Would you agree?

Mr. Peter Kasurak: Our report called into question the value for money of this whole philosophy of low-end procurement fitted for but not with strategy. So in general I think we would agree.

Mr. Art Hanger: Prior to my time running out, I'm going to read the following:

The total value of six projects identified in chapter 4 of the Auditor General's report was $3.3 billion.

I think that's correct, is it not?

Mr. Peter Kasurak: It sounds correct.

Mr. Art Hanger: In your report you state, in paragraph 4.12:

Industry Canada, in consultation with regional economic development agencies, is responsible for industrial and regional development initiatives to be attached to major capital projects.

My question is this. To what extent do regional development objectives drive up the costs?

• 1030

Mr. Peter Kasurak: In 1992 we tried to determine that number and found we could not get a very precise estimate of it. Do you recall the estimate, David?

Mr. David Rattray: Not precisely. We gave a number of examples and tried to put numbers to them, but did not total them.

Mr. Art Hanger: What seems to be the glitch you can't determine? Is it a lack of information?

Mr. Peter Kasurak: The problem is essentially you never get a clean baseline number to work against. The options that are presented to government or looked at during the contracting process all include industrial benefits of one kind or another, so it's difficult in retrospect to go back and analyse what would have happened if you had removed them. We were able to do that to a certain extent in our 1992 audit, and the results are recorded there. But they were very general results. It's a significant amount; I'm not sure if we estimated a point.

You can't go back and analyse a road not taken. That's our problem as auditors.

Mr. Denis Desautels: I think this is a very controversial area, as we found in 1992. Both the estimations of the benefits themselves and the additional costs that could incur are very subjective. It's basically my word against yours, or my expert against yours. That's why it's very hard to pin it down in a very conclusive fashion. But our general impression, based on 1992, is that there were substantial costs and sometimes the benefits tended to be exaggerated. That's the kind of general message we got.

The Chairman: I think the Auditor General can tell from the nature of the questions there's a great interest in this on both sides of the table.

I want to go to Mr. Peric to—

Mr. Art Hanger: Mr. Chairman, I have a point of order. Since we will be unable to have a third or fourth round, I have a series of questions here that I think begs to be answered. I'm wondering if I can submit them and have the Auditor General reply.

The Chairman: It would be quite in order. Any member at any time can submit written questions through the chair. It might be most appropriate through the clerk.

Mr. Art Hanger: Yes.

The Chairman: Of course, I have found the Auditor General to be very available. If the committee wishes to have him and his staff back, I'm sure they would be agreeable. I think we are on to some very important questions.

Mr. Peric, for five minutes.

Mr. Janko Peric (Cambridge, Lib.): Thank you, Mr. Chairman.

Mr. Desautels, on page 2, number 7, overall in your statement we found that the capital portion of the budget was too small to support the equipment program the department had planned. The shortfall could be $30 billion by 2012-13. If the department continued on that path and that really happened 12 or 13 years from now, how far would they realistically fall behind the technology that would be available at that time?

Mr. Peter Kasurak: That calls for a fairly subjective estimate. I would say now we are no longer au courant in several major sectors already. The committee has already noted that we're pretty well up to date in the naval area, which is true, except for naval aviation. But we are already behind, sort of out of the technological envelope, in naval aviation. We are out of the picture in several of the land combat arms, and we need to have the TCCCS radio in place to get onboard on the communications side.

So we are falling out now, even as we speak. If the force structure ambitions are left where they are and the budget is left where it is, the relative situation will continue to deteriorate. There have to be adjustments some place.

• 1035

Mr. Janko Peric: In your opinion, ten years from now how much would we be behind, money-wise? You're saying if we continue that pattern it would be $30 billion, but ten years from now, if it were to be compatible or along the same lines as that of other NATO countries, how much would it cost us?

Mr. Peter Kasurak: We can only point to what the department has identified itself as their mounting deficit, which was in that $20 billion range. That was the department's own estimate of it.

Mr. David Rattray: Mr. Chairman, if I could refer to chapter 3, I think it would be more helpful in answering the member's question; in particular, if you look in the area around paragraph 3.45 and on, including exhibit 3.1. It states that currently we're looking at about 20% of the budget being spent on capital equipment in 1988-89 terms. We project that at the current level of spending in the chart it could go down as low as 8% or 9% of the total budget. Therefore, one gets into some very serious choices or options in terms of capability and amount of equipment.

We also point out in the chapter that the operations and maintenance budget is increasing, and it is now 35% of the total budget and climbing.

So the three options, or the three scenarios, that we point out on pages 3-14 and 3-15 are really at the focal point of where this whole discussion is. Do you maintain the status quo under option one; identify more funding for equipment under option 2; or, option 3, have a major rethink of the Canadian Armed Forces? That's really where I think we're looking before 10 years are up, given those numbers I've quoted.

Mr. Janko Peric: Thank you.

The Chairman: Thank you, Mr. Peric.

There is time for two more questioners. Mr. Laurin for five minutes, please.

[Translation]

Mr. René Laurin: Mr. Desautels, the government is now purchasing Cormoran helicopters, and has already put in its first order. I believe that they plan to buy 30 to 35 helicopters. Do you now have a mandate to conduct an audit, to ensure whether these helicopters are being procured in compliance with the procedure you suggested, or whether the government is going about things the same way it did when it bought the Griffon helicopters? What assurances can we have? Can you tell us now whether procurement methods have been amended, particularly with regards to procurement of the Cormoran helicopters?

Mr. Denis Desautels: Mr. Chairman, obviously we have a mandate to audit the procedure applied in procuring the Cormoran helicopters, as we have in examining any other purchase made by DND. We have not yet determined which contract we will be studying. We could also look at contracts for submarine procurement; DND is not just buying helicopters.

We will be studying current and future acquisitions to check the extent to which they are in compliance with the new procedure the Department wants to implement. Yes, that is part of our mandate. We will use our judgement to identify a number of procurement contracts, which we will then audit.

Mr. René Laurin: Perhaps I did not phrase my question very well. I know that you have the mandate to do this, but I just wanted to know whether you believed these procedures should be examined now, before the last batch of Cormoran helicopters is purchased. If there is to be a recommendation that we change our decision, we have to change it now—not after buying 35 Cormoran helicopters. But if we keep going as we are, then in a year or two you can state in your report: Well, a transaction took place and we observed that the same procedure was applied and the same errors were committed. But if we could have the results of your analysis now, we could demand that corrective measures be taken to ensure that procurement is in compliance with the new procedures proposed.

It goes without saying that we cannot decide what you are to study. That decision is yours, and yours alone to make. However, I would like to hear your opinion.

• 1040

Mr. Denis Desautels: I will make two points. First, regardless of whether we conduct an audit, I think it is our right to ask that the Department monitor the new procedure it has implemented, as much as it can. The Department is developing a new procedure, and I believe that all procurement will therefore be conducted using that procedure, regardless of whether we conduct an audit.

My second point may reassure you, Mr. Laurin. I should confirm that more and more of our audits are being conducted early in the procurement process, rather than at the end, when the last piece of equipment is delivered. This applies to the Cormoran helicopters and to other equipment. Please rest assured that we will take a look at what's going on.

Mr. René Laurin: For my last question, Mr. Chairman, I would like to come back to the conclusions in your opening statement. You said:

19. In conclusion, we think that the need to address the disparity between the Defence Budget and the Department's acquisition plans is an urgent and pressing necessity.

What is the most urgent measure this committee should take in response to your concerns?

Mr. Denis Desautels: Mr. Chairman, let me just refer to the comments made a little earlier by Mr. Richardson and my colleague Mr. Rattray. Chapter 3 deals with this issue fairly clearly, and suggests some options. I would like the committee to examine these options, and formulate recommendations. I would be the first to concede that we may not have identified all possible options, and that we do not necessarily have a monopoly on good solutions. But the ones we propose could serve as a starting point, and help us find a way towards balancing the policies we want to establish and the funding we can allocate to them. On the basis of that review, we could determine procedures for procuring capital equipment in the future.

[English]

The Chairman: Thank you very much.

[Translation]

Thank you, Mr. Laurin.

[English]

The final questioner is Mr. Bertrand, and then we will go to the motion. I would indicate to all members that we have a quorum if all members stay. We have an important motion to deal with.

So we'll go to Mr. Bertrand and then we will proceed.

Mr. Robert Bertrand: Mr. Desautels, when you talk about innovative financing you say it has only appeared in our 1998 audit. I presume by what you're saying that we'll have to wait until your next report to find out how it's going. Do you just wait until after the year is done, or are you following it right now? Do you follow it day to day?

Mr. Denis Desautels: Mr. Chairman, the answer to that is yes. We raised the issue of innovative financing. It's a relatively recent phenomenon, as we've seen through the NATO training program and also the submarine purchase, and we will consider those as early as possible in our work program. We think it's an important question. It raises some policy issues as well, but it also raises both some disclosure and transparency issues. Also, as some members have noted earlier—I believe Mr. Laurin and Mr. Price—there are requirements of the Financial Administration Act to be met by these new financing arrangements. Right now we are working on the first one of those, the NATO training, and we hope to be able to report to Parliament on that next fall.

The Chairman: Thank you, Mr. Bertrand.

Mr. Desautels, gentlemen, thank you very much for joining us today and shedding some light on procurement. We intend to watch this very closely as a committee on both sides of the table. No doubt we'll wish to have you back in future on this.

• 1045

Thank you very much.

Mr. Denis Desautels: Thank you, Mr. Chairman.

The Chairman: Monsieur Laurin, you have a point of order.

[Translation]

Mr. René Laurin: Mr. Chairman, if I have my colleagues' unanimous consent, I would like to move a motion for consideration immediately after the one already on the agenda.

[English]

The Chairman: Do you just want to table it today?

[Translation]

Mr. René Laurin: If committee members agree, I would prefer to discuss the motion today. If we do not, I will just table it and our discussion will be postponed to the next meeting.

[English]

The Chairman: What I'll do, Mr. Laurin, is deal first with the motion that is on the agenda, and then I'll give you an opportunity to present your motion. Okay?

I'm going to go to Mr. Bertrand.

[Translation]

Mr. Robert Bertrand: Mr. Chairman, at its last meeting, the steering committee agreed that all documents would be tabled in both official languages. I am moving the motion now, Mr. Chairman.

[English]

The Chairman: Thank you.

There's a motion on the floor, discussed at the steering committee, of which all members have had the required 24 hours' notice. It is printed on the agenda and moved by Mr. Bertrand as printed.

Discussion to that motion?

Then I will call a vote on the motion.

Mr. Art Hanger: Are you saying there's going to be no discussion on the motion?

The Chairman: No, no, I called for discussion and there were no hands.

Mr. Art Hanger: Oh. Well, I do have a question.

The Chairman: Mr. Hanger.

Mr. Art Hanger: I think this particular motion ties the hands of committee members in that a matter may arise without a lot of forewarning, and there might be a need to present it to the committee for a vote. It would be very difficult to have this particular item translated immediately.

The Chairman: Right. That's a good point, Mr. Hanger. That was discussed at the steering committee. Perhaps it could have been spelled out, but it's understood and implicit in the motion. We can add it if you want.

Mr. Art Hanger: I think it should be added.

The Chairman: Then I would suggest this amendment, if Mr. Bertrand is agreeable—that with the unanimous consent of the committee, this motion can be set aside as required.

In other words, if there's a situation where the witness really didn't have an opportunity, through no fault of their own, to give the document in time for proper translation, be it English to French or French to English, and if the committee is agreeable to set aside the rule, then we would set aside the rule.

If I can just put it in context, I'm a unilingual anglophone who's trying to learn French. The fact is, this country has two official languages, and the government of this country and the military of this country operate with two official languages.

If it passes, witnesses are going to be told by the clerk that they have to give us their documentation in time for us to get it translated for them. They don't have to get it translated. We'll provide the service, but they have to be fair to all members, some of whose first language is French and some of whose first language is English. You have to be fair to all members to give our staff a chance to have the translation done so they can deal in their own mother tongue, if you will.

That's the spirit of the motion.

Mr. Art Hanger: I think that inhibits any verbal motion being put on the floor. I don't agree with that.

The Chairman: Why? I don't understand.

Mr. Art Hanger: Because who is going to interpret?

The Chairman: We have interpretation here.

Mr. Art Hanger: So I can put a verbal motion on the floor, much like my colleague here will be presenting in a couple of minutes.

The Chairman: Sure, because we have translation. We're just talking about witnesses, not members.

Mr. Art Hanger: Oh! Okay.

The Chairman: Can I have a show of hands on the motion?

(Motion agreed to—See Minutes of Proceedings)

• 1050

The Chairman: Monsieur Laurin now has in front of the committee a request to entertain the motion.

First of all, do all members have it?

Then, Monsieur Laurin, perhaps you could give us a minute to read it.

Okay. There's a request from Monsieur Laurin to be allowed to present this motion for discussion today.

Is that correct?

[Translation]

Mr. René Laurin: Yes, Mr. Chairman.

[English]

The Chairman: Does he have unanimous consent?

[Translation]

Mr. René Laurin: May I officially read the motion, Mr. Chairman?

[English]

The Chairman: Oh, sure. You can read it for the record, and then I want to see if you have unanimous consent.

[Translation]

Mr. René Laurin: My motion reads as follows:

That the department of National Defence table before the National Defence and Veterans Affairs committee all the flight logs related to its Challenger and Airbus fleet from February 1 to February 9, 1999.

Mr. Chairman, we know that DND indicated it would publish them.

[English]

The Chairman: Mr. Laurin, thank you. You've read the motion for the record. Procedurally, before there's any debate, I have to make sure the members are willing.

Does Monsieur Laurin have unanimous consent to present this motion today?

Some hon. members: Agreed.

The Chairman: He does. Okay.

So I'll allow Monsieur Laurin to make a brief comment—

Some hon. members: No.

The Chairman: There is some objection to Mr. Laurin presenting this today.

I don't have unanimous consent, Mr. Laurin.

Mr. René Laurin: Who opposed it?

The Chairman: Mr. Wood and Mr. Richardson, I heard.

[Translation]

Mr. René Laurin: In that case, Mr. Chairman, in accordance with the Standing Order providing for 24 hours' notice, I now submit a notice of motion. I would like consideration of this motion to be on the agenda for the next committee meeting.

[English]

The Chairman: Absolutely.

We now have notice of motion by Monsieur Laurin. This motion will be on the agenda of the next committee meeting.

[Translation]

Mr. Bertrand.

Mr. Robert Bertrand: I would just like to point out that a request has been submitted to obtain these documents pursuant to the Access to Information Act. The notice is therefore somewhat redundant, since the information in question will be made public within a few weeks. They will be posted on the Internet as soon as the Department is ready to disseminate them. At that time, everyone can have a look at them.

The Chairman: Mr. Laurin.

Mr. René Laurin: Mr. Chairman, what worries me is that my motion may in fact become obsolete. As we know, DND has agreed to publish this information, but has not specified when. It is important that we have access to the information as quickly as possible. If the logs are published only in two or three months because of cumbersome red tape, they will be less relevant, less useful, and obsolete themselves.

That is why I have moved this motion, Mr. Chairman. If my Liberal colleagues genuinely have nothing to hide, then I don't see why such information—which is in fact quite innocuous—should not be provided as soon as provided.

[English]

The Chairman: The motion has been presented properly. The motion is in order. The motion is accepted by the chair. It will be on the next meeting agenda of this committee.

Is there any further discussion, Monsieur Bertrand?

[Translation]

Mr. Robert Bertrand: But everyone must understand that this information cannot simply be obtained overnight. We parliamentarians have to give the people entrusted with that task the time to do their jobs. That is all I wanted to say, Mr. Chairman.

[English]

The Chairman: Okay. Merci.

We are adjourned.