NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 2, 1999

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[English]

The Chairman (Mr. Pat O'Brien (London—Fanshawe, Lib.)): I would like to call to order the meeting of the SCONDVA committee and welcome our guest, Monsieur Pierre Lagueux, who is the assistant deputy minister, materiel, with DND.

Maybe I should forewarn my colleagues that we're into a very intensive look at procurement, as we know, which will take us through several meetings. We've already started with the Auditor General's constructive criticisms a couple of meetings ago and another briefing last meeting.

Mr. Lagueux will give us an overview—as he says, Procurement 101—on just how it works. He will probably need the better part of an hour to give us this overview. At that point we will go to questions from members. If we would like to ask more questions and today's meeting is over, I'm sure he would be willing to entertain more questions at another meeting.

With that introduction, colleagues, I will call on Mr. Lagueux to make his presentation.

Thank you for joining us, sir.

Mr. Pierre L. Lagueux (Assistant Deputy Minister, Materiel, Department of National Defence): Thank you, Mr. Chairman. It's indeed a pleasure for me to be here this afternoon and lead off what I think will be several very important sessions you will have in the future dealing with the issue of defence procurement.

As you indicated, I have an extensive presentation this afternoon. I won't go into any real detail on some of the many issues, but I'll at least give members an overview of several issues you may wish to explore further, either with myself in the future or with other witnesses that may come before your committee.

On the DND budget by component for fiscal year 1998-99, of particular importance is the capital segment of $1.6 billion, which is the total capital we estimate to spend in this fiscal year in the maintenance and operations portion of $2.8 billion. There is a grand total of $9.4 billion for the annual budget for National Defence.

Looking more particularly at capital equipment, the number is a little different because it does not include construction. To give you an idea of where the capital money will be spent in National Defence in the fiscal year 1998-1999, the major portion will be spent for the land environment or the army, but of course this varies from year to year. If you had looked at this same breakout a few years ago, you would have seen that at the time we were spending money on the frigate program, the maritime coastal defence vessel program and so on, and the portion of the money would have been much higher for the navy than it is today.

On where we're spending at the national level for what are called national goods and services, or national procurement, it is part of the O & M budget, and is broken out among the army, navy, and air force. The air force is spending the largest portion of those goods and services we buy nationally, but again this varies from year to year, and a different picture would have been seen in previous years.

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This next slide talks about local operations and maintenance spent by the environments—the army, navy, and air force—at the local level, at the bases, stations, and units. It gives you an idea of the breakout of spending that occurs for goods and services at the various bases and stations. It's important to recognize here that we spend money at the national level, but the bases and stations also spend funds locally to buy goods and services.

The next slide gives you some idea of research and development. This is not the total research and development project, it's only that portion of it that we actually spend with industry. The total research and development project is about double that amount when you look at the money that is spent within National Defence. But again, it gives you some idea of the amount of money that is spent for contracted research and development, and how it is spent.

The next slide gives you some idea of the size of the procurement, acquisition, and materiel support budget we have. The inventory, as you can see, is about 850,000 line items. This has been going down significantly in the past years. The value of the inventory is about $8 billion. This does not include our capital goods, such as airplanes, ships, tanks, and planes, but is a value of inventory.

We have ongoing at any given time approximately 20 major crown projects and about 81 other approved capital projects—what we call stand-alone or independent. All in all, we'll spend about $4.4 billion in procurement this coming year, which is close to about half of what the Government of Canada spends.

When we look at these contracts, and here we're talking about any acquisition, procurement as a contract, you can see the vast majority of them are small. They are let by DND ourselves, and as you see, of the 400,000 under the number of contracts, about 80% are done by acquisition cards. So a tremendous volume of low acquisitions is done in DND.

Those large acquisitions that you hear a lot about are actually few in number, though of course they spend the majority of the money. When you look at the bottom of the slide at the contracts let by Public Works and Government Services Canada on our behalf, goods over $25,000 equal about $1.5 billion, and services over $25,000 equal another $1 billion.

Note, of course, that these are contracts let in the year, so obviously the amount of dollars in the contracts let doesn't necessarily equal the cash that goes out in the year, since many of these contracts flow cash over many years.

We hear a lot about challenges to the contracting process. Contracts over $25,000 are subject to review, to challenge by the Canadian International Trade Tribunal—the CITT. We had about 5,500 contracts last year over $25,000. We had 23 challenges, two of which were upheld by the CITT.

The next and following slides give you some idea of what DND procures. Obviously, our procurement of large capital equipment—armoured vehicles, helicopters, submarines—is what makes the headlines, but we buy a whole variety of things—commodities such as fuel, stationary, food, and building materials.

We procure services—professional, training, consulting, and transportation services—and ammunition, of course. On the next slide you'll see we procure R and D services and contracts. We procure construction services. And we procure a significant amount of information technology, whether it be mainframes or PCs, software, communication networks, and the like. So DND really procures everything from soup to nuts.

I'd like now to focus on the procurement process itself. But before I do that, I think it's important we focus on some key definitions of certain things that are important to understand as we look at the procurement process.

First of all, I think most members recognize the difference between capital and O and M. Capital expenditures are made to acquire or improve capital assets. They introduce new capability, and they're commonly called vote 5. Operations and management, O and M, is vote 1, and is essentially all our operating and maintenance costs—spare parts, services, repair and overhaul, rentals, and so on.

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It's also important to differentiate between goods and services. This is important as we look at the process later on. Goods, of course, are articles, commodities, equipment and materials. By definition, though, they also include the construction and repair of a vessel. And services contracts are just that—they're a provision of services, but they exclude ship repair.

It's also important to differentiate between what we call expenditure authority and contract authority. Expenditure authority is the authority and the ability to make decisions to obtain goods or services that will result in the eventual expenditure, whereas contract authority is a legal authority to enter into a contract on behalf of the government. These are two important differentiations it's important to understand as you look at the procurement process.

Putting all these definitions together, if you look at expenditure authority, under vote 1—that is the O and M expenditure, the operations and maintenance—there are no specific approval constraints for the department in terms of expenditure authority for vote 1. Of course we must have the money in the budget before we can authorize expenditure of it, and there are internal departmental approvals.

For vote 5, capital project approval, the minister can approve up to $30 million. Treasury Board can approve over $30 million, and major crown projects, which are normally over $100 million, normally go to cabinet as well as Treasury Board for approval. So when you look at expenditure authority, these are the limits and who can approve what.

When you're looking at contract authority, the Minister of Public Works and Government Services Canada has the authority to procure goods. So the authority of the Minister of Public Works and Government Services Canada to contract for most requirements—and this varies from commodity to commodity and so on—as a general rule is about $40 million if it's posted on the electronic bulletin board, on the open bidding system. Otherwise it's about $10 million and over for which we need Treasury Board approval. That is, the Minister of Public Works and Government Services Canada needs to have Treasury Board approval.

There has been a delegation to DND for some contracting authority. The delegation is $5,000 to our minister. It's $5,000 for local purchase authority, although we do have emergency contracting authority up to $1 million in an emergency situation. But normally it's $5,000 for local procurement authority.

While the contracting authority for goods is one thing, the contracting authority for services is different. Actually here in this case our minister and all ministers have the authority of the contract for services up to $2 million if electronic bidding is used, up to $400,000 if traditional competitive tendering is used, and up to $100,000 if let on a non-competitive basis. Above those limits ministers must go to the Treasury Board to have contracts approved.

I've gone through all those definitions very quickly, but it's important to recognize that they apply not only to DND; they are Treasury Board policies that apply to all government departments. The purpose of this slide you have before you now is to indicate that DND procurement is really government procurement. There are no special rules that differentiate DND procurement from government procurement.

That is quite different from what you'll find in many other countries around the world, such as the United States, Great Britain, and so on, where their department of defence has specific procurement authorities and specific rules. Here it is government procurement that applies to all government departments, including DND, and therefore the Treasury Board contracting policy applies to what we do, just as it does to any other government department.

I've included this slide because quite often there is confusion with requests as to what is an invitation to tender and what is a request for proposal. That seemed to be an issue at times when the Auditor General was briefing various committees.

Just to clarify that, an invitation to tender is usually done for the less complex requirements. It's done when little or no negotiating is expected, and it's normally based on the acceptance of the lowest bid. So normally it's a well-defined product and the lowest bid is acceptable.

A request for proposal is something we do when it is more complex. There's normally a more complex evaluation process involved, and negotiations are possible with respect to the outcome. And the lowest bid is not necessarily the winner. You normally go for best value in terms of evaluating the proposals.

So that was to help members in understanding the difference between an invitation to tender and a request for proposal.

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This next slide indicates the government procurement objectives. I know that these are the government's procurement objectives. As I said, they apply to DND, as well as to all government departments. They are in ranked order. The first objective is to meet the operational requirements through a competitive, fair, and accessible approach; that is, the best value for money. The second objective is to promote long-term industrial and regional benefits. Third is to achieve other national objectives. Lastly, and a more recent addition to the objectives, is to assist Canadian firms in becoming competitive in domestic and world marketplaces. Obviously, the most important objective is at the top, which is to meet operational requirements, and the other objectives flow after that.

As I said, the third bullet there is to achieve other national objectives. If you look on the next slide, there are often many considerations that go into a large procurement: satisfying the operational requirement; value for money; industrial benefits; regional benefits; small business benefits; environmental concerns, where quite often we're being urged to buy green, to buy vehicles that are non-polluting and so on; official language considerations; international treaties; trade agreements; and a procurement strategy for aboriginal business. These are all other considerations that quite often play a part in any large procurement. These are not just for DND procurements, but for any large government procurement.

How, then, do we ensure that all these considerations are taken into effect, and what does that mean? As you can see from the next slide, there are several government departments that have an interest in defence procurement. I've listed some of them. This is not necessarily an exclusive list. I placed DND in the middle, and we're surrounded by lots of help. Public Works and Government Services of course is the contracting authority on behalf of the Government of Canada, but as I pointed out in these other considerations, these other government departments represent those considerations. For example, industrial and regional benefits is Industry Canada. The regional development agencies of course have a great interest in that. In the procurement strategy for aboriginal business, DIAND, of course is represented, and so on. So all these government departments have an interest in large defence procurement, indeed in large government procurement.

So how do we put all this together and make it work? Essentially, there's a procurement strategy committee that is set up within government. This is an interdepartmental committee that considers the procurement strategy and socio-economic and other strategies for any procurement that is between $2 million and $100 million—that is, non-major crown projects. Projects of $100 million we'll deal with separately. But for anything where it is considered that there is potential to satisfy some of these other objectives, the procurement strategy committee meets. It is chaired by Public Works and Government Services Canada. All projects over $2 million must be vetted through this committee before they can proceed, and any project that is deemed to have potential for socio-economic and other considerations is then referred to the procurement review committee for a detailed review. As I said on a previous slide, several departments sit on this committee—of course ourselves, Industry Canada, the regional agencies, and so on.

In the case of major crown projects, those large projects over $100 million, we have what is called a senior project advisory committee. In this case it is chaired by National Defence, as the sponsoring department, but it could be another department if there were another sponsoring department; and all these same departments are represented. Again, the purpose is to review the project from the broadest government perspective, in terms of all the objectives I cited earlier. It ensures that there is senior management attention to a project. It ensures that overall government guidance is provided to the project, that there is consensus on how we approach all these government objectives, that we agree on a procurement strategy and that ministers of all concerned departments are kept fully informed.

One thing that influences how we buy is competition. Normally all opportunities over $25,000 are advertised on the government open-bidding system. There are exceptions, of course, to competition. Sole sourcing is permitted, for example, if there is only one source of supply, if it's not in the public interest, such as national security considerations and in the case of emergency, and if it's less than $25,000.

Trade agreements have a significant impact on what we can do. However, I would point out that in the case of defence, all defence weapon systems and support for weapon systems is exempt from NAFTA and the World Trade Organization. They are not, however, exempt from the agreement on internal trade.

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Canadian content policy again applies for requirements that are not covered by international trade agreements. If sufficient competition exists in Canada, which is normally three suppliers, we tend to compete it within Canada.

I mentioned industrial and regional benefits. Aboriginal and small-business participation are also considerations that shape how we come up with our procurement strategies.

I should also point out that in the defence policy paper of 1994, the way we procure our goods and support our equipment was also mentioned. I've extracted from the defence policy paper the following points that were made. First of all, it was stated in the paper that in the future we would emphasize equipment life extension and that we would be procuring new equipment only for the core capabilities of the Canadian forces and equipment that would be suited to the widest range of roles possible. In other words, we would operate fewer types of equipment in the future. We would develop innovative ways to acquire and maintain equipment. We would emphasize the shift to commercial technology. Basically, then, we would apply military specifications only where absolutely essential. We would strive to reduce our inventory and our inventory carrying costs through just-in-time delivery. Further on I will show how many of the things we have done have essentially followed this policy.

How, then, does the process actually work? I want to dwell on this at a few different levels, because, as I said, we buy very many different things and therefore the process applies differently depending on what we're buying, the level of money we're spending, and so on. At the bases and units across Canada most of the procurement done now uses a very simplified approach. Acquisition cards are in the hands of the users, and procurement is done directly by the customer for low-value items, less than $5,000. It's a very efficient and speedy process whereby users, provided they have the money in their budgets, can go out and procure what they need.

A lot of this stuff involves common and repetitive commodities. Because of that, the regional Public Works and Government Services offices have established what we call standing offer agreements with local suppliers. These apply not only to our department but also to all departments in a given area, where we get volume discounts. For things such as stationery, cleaning materials, or building materials, the customer can demand directly off those standing offers, pre-negotiated contracts, if you like, and use acquisition cards to pay, and they're delivered directly to the customer. The era of large base supplies carrying large common commercial commodities is long behind us.

For nationally stocked items, the user comes to the supply section, places a demand for whatever item he needs, and that is handled through the automated system and delivered directly to the customer.

Therefore, we must often replenish our national stocks. Those items that are kept in our depots are mainly, for example, spare parts for military equipment, unique military stores, and so on. By and large our replenishment is triggered by our automated supply system, which has a pre-set reorder level, and the procurement quantity is suggested to the supply people based on economic order quantity principles. They take this suggested order buy. It's reviewed by our technical staff to ensure that it is legitimate.

If required, the procurement strategy review is done by interdepartmental committee if it's seen to be over $2 million. We raise the requisition, which encumbers the funds, and we send that over to Public Works and Government Services Canada. They obtain the bids, normally, through the open bidding process. Bids are evaluated jointly between ourselves and Public Works and Government Services Canada. If a winner is picked, then Public Works will award the contract.

The contract is approved, depending on the value, by the minister or by Treasury Board. Most of our contracts are of a value much below that, and so the delegation is made to officials within Public Works and Government Services Canada, who approve the contract. The contract is let. The goods are delivered to a national depot, where they're inspected for conformity to the contract. It's a fairly routine process, and it's done many times throughout the year for a variety of goods and services.

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So far, that's the easy process for the common goods and services, the replenishment, the commercial commodities, and so on. However, when we turn to capital procurement, the process is a bit more complex, as it should be. There is more oversight, as there should be, because we're talking greater dollar values, and we're adding new capability to the department.

By and large the capital procurement process consists of four phases, and if you look at the procurement process used in other countries around the world, you'll find they're very similar. They may call them different things, but essentially the four-phase approach is very common, if you look at what the Americans do, the Brits do, the Australians do, and so on. The four phases are the identification phase, the development phase, the definition phase, and the implementation phase. These four phases are nicely structured here, but as you get into the process itself, it can be quite fluid and things can move around.

I want to take you through the four phases one by one. First of all, in the capital procurement process, there is the identification phase where operational staff will identify a capability deficiency and produce what is called a synopsis sheet identification deficiency. Back in the old days we used to call that a statement of capability deficiency, and now everything is called a synopsis sheet. New requirements can arise for many reasons, and I've listed some there, such as equipment aging, changes in operation, technological advances, strategic analysis identifies future requirements, and changes in government policy. I hope no one reads too much into the example I've used there. It's merely an example from the past where a white paper came out with a change in government policy, and it identified a deficiency.

A preliminary list of potential solutions is developed at this stage, along with rough order-of-magnitude costs. The project is then entered into the long-term capital plan, which signifies agreement at a departmental level to address this deficiency, and responsibility is assigned normally to an environmental commander to proceed with the next phases of this project.

The next phase is the project development phase. At this stage a departmental senior review board is formed, which is normally chaired by the environmental commander or his delegated staff, depending on the level of the project. The senior review board will approve a project charter, which identifies exactly what it is that needs to be accomplished, how we plan to do it, the major people involved, and so on. The project manager is named, and a project office is established. But at this time it is really people from within the existing matrix who are doing the work. No funding has been provided to set up an independent project office or pay for additional people. Option analysis, feasibility studies, and risk assessments are carried on, together with a refinement of cost estimates against the various options.

A recent addition to the process is scenario testing. I think you may have heard from the Auditor General that he is most anxious we develop scenarios in the department against which to test and evaluate our outputs. We are now developing the scenarios, and as part of the project development phase, the options are tested against these scenarios.

Following that, a statement of operational requirements is prepared and reviewed by the DND senior management oversight committee, which again is a new process we have put in place. It is modelled on what the Americans call the joint requirement oversight committee, what we call the senior management oversight committee.

The project profile and risk assessment is prepared and reviewed with Treasury Board Secretariat. A lot of these are further refined in the following stages. An initial procurement strategy is developed and reviewed by the interdepartmental project advisory committee if it's at that level of expenditure.

All this leads to finalizing what is called the synopsis sheet preliminary project approval. This is reviewed by the department, and depending on the value of the project, we will need to get the minister's or Treasury Board's approval or, if it's a large major crown, up to cabinet approval. Essentially, this gives us expenditure authority to carry out definition work if it's required, and it gives approval in principle for the project based upon the rough estimates that have been developed at this stage.

At this point we'll move on to project definition. It's at this point we now have money to proceed with the project, money for definition, so a dedicated interdepartmental project office is formed. I would stress that the project office is now interdepartmental, normally with the minimum staff from Public Works and Government Services Canada. Definition studies are carried out as required, usually by funding definition studies with contractors, consultants, or whatever.

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Costs, schedule, and risk parameters are finalized. A finalized statement of operational requirements is developed, again reviewed and approved by the DND senior management oversight committee. The preferred option is selected. The project profile and risk assessment is updated based upon this preferred option, and again reviewed with Treasury Board Secretariat. At that point, discussions on the risk of the project, which will decide whether it's a major crown or not, are agreed to.

The project implementation plan and procurement strategy are developed and finalized. The DND senior review board reviews those plans and endorses them. The interdepartmental senior project advisory committee, if it's a major crown project, reviews the procurement strategy and agrees to that. Again, all this leads in this case to finalizing the synopsis sheet effective project approval, which again must be approved internally in the department, approved by the minister, Treasury Board, or cabinet, depending on the level of the project, depending on those levels I mentioned to you earlier. This, when it is approved, gives us expenditure authority for implementation.

As we move into the implementation phase, the project office issues the request for a proposal. And when I say the project office, I really mean the interdepartmental project office, because the request for proposal was issued by Public Works and Government Services Canada, which is now part of the project office.

The project office evaluates the bids received and selects a winning bid. There are final contract negotiations. Contract approval is obtained. Again, depending on the level of the contract, this may require either the Minister of Public Works or Treasury Board or cabinet to approve. At that point we are into contract.

The project office then is responsible for managing the delivery of the equipment from that point on. I have listed several things they get involved with: ensuring contract compliance; monitoring progress; authorizing payment; managing changes, and so on; and very importantly, managing all the myriad of other things that have to be done to ensure that when the equipment is delivered it can be put into service by the armed forces. So there is training of people. There is ensuring that contracts for logistic support and for any new construction that needs to be made and so on are all put in place so that when the equipment is delivered it can be accepted into operation immediately. The project office is responsible for handling all these things.

I have mentioned major crown projects a few times. Normally they are large, complex procurements, normally over $100 million. They usually extend over several years, given their size and complexity, and usually are assessed as high risk.

Because of their size and complexity they're subject to a much higher degree of interdepartmental consultation and participation to ensure that those broad government objectives, which I mentioned earlier, are fully considered in the approval process. And given the size and complexity and I should say uniqueness of each major crown project, the approval in procurement process is quite often adopted to fit each of those unique circumstances. However, the review and approval oversight is always maintained to ensure prudence and probity in expenditure of funds.

I would just like to mention a little bit about testing and evaluation. In his report the Auditor General mentioned testing and evaluation in DND. We have always had a policy on testing and evaluation. However, we hope to be releasing an updated policy on testing and evaluation in the next month or so. While we have always had a policy, it is true that the policy did not keep up with some of our new approaches, particularly with commercial off-the-shelf procurement and so on. So we're integrating this revised policy into our reformed material acquisition process.

As we move more to commercial off-the-shelf and military off-the-shelf acquisitions, of course we'll be relying more and more on the private sector and on commercial standards to satisfy our testing and evaluation needs but still maintain the capability to carry out unique departmental testing and evaluation.

I would point out to members that we do maintain a significant test and evaluation capability within the department. There are five major test establishments that exist within the department. Starting on the west coast, they are the Canadian Forces maritime experimental test ranges in Nanoose, on Vancouver Island; the aerospace engineering test establishment in Cold Lake, Alberta; the quality engineering and test establishment in Hull, Quebec; the naval engineering test establishment in Lasalle, Montreal; and the munitions experimental test centre in Valcartier. So we do maintain facilities to carry on testing establishments in a variety of different areas.

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If I may now, Mr. Chairman, let me turn to a different topic, that of the defence industry. I just have a few slides on that to briefly highlight some points on the defence industry.

Certainly we view industry as our industrial partners. This next slide is not all-inclusive by any stretch of the imagination, and I hope I haven't offended any industry by not including them here; it gives you an idea of some of the major partners we deal with. The Canadian Defence Industries Association, the CDIA, a couple of years ago did a review of the defence industry in Canada and found that there were almost 1,500 firms in Canada with revenues from defence procurement greater than $100,000.

Information was obtained from the report by the Canadian Defence Industries Association that these 1,500 firms had a total market of about $5.3 billion, leading them to conclude that about 50,000 jobs in Canada depended upon the defence industry. Most of it is a result of a domestic market, but there is a significant export market as well. What is particularly interesting is that of the firms surveyed, only 2.3% said that their complete product line or services are defence-related. In other words, most of the firms we deal with have defence as only one of their customers, and in many cases only a very small customer.

From our perspective, the defence industry is an essential pillar of national security. We depend upon industry for goods and services to ensure that the armed forces can carry out the jobs they are called upon to do. However, we also note that our domestic needs alone in many cases cannot sustain the defence industry; the defence industry must export in order to survive. The world is getting much more difficult out there. There are many challenges to export. Defence budgets worldwide are getting smaller. There is more competition, and there is greater foreign government support to their own local industries, making it more difficult for Canadian industry to export. Essentially, I think we need then to focus on those Canadian world-class products and exploit those around the world. And I would invite you, if you will be speaking to the Defence Industries Association, to speak about that.

Finally, Mr. Chairman, I would like to spend a few minutes talking about procurement reform, which I think is of particular interest to this committee.

First of all, why acquisition reform? Well, I think from a purely selfish point of view I can say, Mr. Chairman, that within the materiel group, which I'm responsible for in the defence department, we have reduced by more than 50% our effective strength over the past several years, so we can't continue to carry out the business the way we used to. Our budgets are smaller. Therefore we need to ensure that the amount of money we spend goes directly to what we buy, as opposed to how we buy it. And of course we've seen some significant successes in acquisition reform in our allies, so the rapid pace of technological change demands that we do things differently.

Our primary objectives with acquisition reform are obviously to improve materiel support to operations, to approve the efficiency of the acquisition process, and to optimize the value obtained through the authorized expenditures. But these are kind of fuzzy objectives, and hard to specifically get hold of, so really what we have are contributing objectives: if we can do those things, the primary objectives will realize themselves. For example, if we can simplify the acquisition process, reduce procurement cycle time, reduce the number of contracts, use information technology better, we will in fact improve the efficiency of the acquisition process. So those contributing objectives are what we're focusing on in trying to come up with specific changes to the acquisition process.

You hear a lot of what has been going on in other countries around the world with respect to acquisition reform. I'd just like to spend a couple of minutes here making members aware of what we've been doing in the past years with respect to acquisition reform.

First of all, I would like to say we've stopped stocking commercial items, but I suppose we still stock some. But certainly we've made a lot of headway in terms of reducing our stocking of commercial items, as I said earlier. We now have acquisition cards and so on in the hands of users. This reduces inventory investment, warehousing costs, distribution costs, and so on. We're moving basically to get out of the commercial items in stocking those.

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We've introduced acquisition cards, as I said earlier, and delegated authority to customers up to $5,000 using those credit cards. There is faster service, as the decision is made locally to where the people actually need the goods and services. We've introduced alternative service delivery to get out of non-core functions and have industry be involved in those functions for us.

We're emphasizing more and more commercial off-the-shelf procurement wherever it's possible, wherever it makes sense. The Bell 412 helicopter is a case in point. Going commercial off-the-shelf reduces development risk. It reduces costs, speeds up the procurement, and of course gets us out of military specifications, which in many cases are behind commercial specifications today. We're looking more and more at promoting with our friends in Public Works and Government Services Canada what we call benefits-driven procurement, where we work in partnership or partnering with industry.

Primarily up until now we have focused this on large information management and information technology projects, but focusing on performance, focusing on the benefits of the procurement, and working with industry how we can share in the benefits of a successful procurement. We've organized our acquisition staff into equipment program management teams. We've taken our supply and procurement staffs, our engineering and maintenance staffs, quality assurance staff, and put them together in teams, as opposed to separate organizations where paper used to flow between them. Now they work together, greatly adding efficiency to the process.

We've worked with Canadian industry and the Canadian General Standards Board to develop and implement a project performance management standard. It's the basis for managing all complex and high-risk DND capital acquisition projects. It's a performance measurement standard, again developed with the Canadian General Standards Board based upon commercial practices.

In the quality assurance world, we've moved from an inspection and oversight-based methodology to a risk management approach based on ISO 9000 standards—commercial quality assurance standards, commercial quality methodology, which our major allies also moved to, including the United States and Great Britain, some years after we started that approach. To encompass all this, we have developed an acquisition reform guide, which is a comprehensive guide to the acquisition reform concepts and best practices, which we have developed internally and which we have shared with our colleagues in other government departments and with industry and on which we have received many favourable comments. We continue to work on that.

These are some of the things we've done over the past years. Some of the things we're continuing to work on in acquisition reform include the following. First of all, we're looking at what we will call total package procurement, where a contractor would assume not only responsibility for delivering the main equipment but also responsibility for the provisioning of spare parts and total life-cycle support, if that makes sense in a particular case. So we lessen the number of contractors, lessen the number of contracts we have to manage, and put total responsibility with one contractor.

Pre-facilitated contracting is something we've started on now. Essentially it's a multi-year, legally binding contract where we bundle like goods and services together. We reduce the number of different contracts we have for bundles of goods and have one contractor responsible to provide a whole range of goods and services. He then manages all the subcontractors and all the subcontracts in place. We deal with one person or one contractor to give us that range of goods and services.

On integrated project teams, our friends in the United States and the United Kingdom have experimented greatly with this. We will build upon our equipment program management team, where we then include industry people and so on in those teams, again to work together to develop solutions to our needs.

An initiative that is being headed up now by Treasury Board, in which we're much involved, is the professional development and certification of procurement staff. This is a cross-government initiative. We are working with Treasury Board and Public Works and Government Services Canada to move toward a professional development program and accreditation of staff.

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Again, we're working with Treasury Board, promoting electronic commerce, to speed up and make more efficient the buying process. We are working hard to promote partnering with industry, and I would stress it's partnering and not partnership with industry. Partnership has a legal implication here. What we mean here is moving much more toward performance specifications as opposed to the detailed technical specifications, focusing on what we want the contractors' equipment to do as opposed to telling them how they will do it.

We are promoting performance-based contracting, with incentives and penalties, and promoting cost as an independent variable, where in the past cost was quite often what resulted when you looked at a schedule and a performance—and cost was what you had to pay for that. Now we are looking to see if we are in fact demanding the last 1% of performance for 90% of the cost, and looking at the cost issue much more closely.

All this will lead us to developing an acquisition desktop guide, based upon our acquisition reform guide, an electronic reference that will be in place, we hope, within the next few months, to ensure that all our acquisition people have at hand all the information they need, such as the cross-references between policies, contained in the reform guide, to make their job that much easier.

In summary, we've already undertaken a wide variety of acquisition reforms. We have a lot more to work on. We're striving to more cost-effectively equip and support the Canadian Forces. We're striving to modernize our materiel acquisition and support business. Much of what we're doing is in keeping with what you will see in our closest allies, what you'll see in terms of the information management revolution and best commercial practices. We're looking to optimize value for money spent. We want to become smarter buyers and we have to conduct our business with far fewer resources.

As part of this process, I've met with the heads of several of the main industry associations that we deal with on a few occasions. We have asked them for feedback and their comments in terms of what they would see being done with respect to acquisition reform in government and within DND.

I just put up this slide to show, on the left side, our objectives, and on the right side, the feedback we got from industry and industry associations. I would point out there is a very high degree of agreement and synergy in terms of what we are trying to achieve and what they would like us to do. I don't think there are any great discrepancies in terms of where we are trying to go with respect to acquisition reform and what industry expects, but I am sure you will have the opportunity to speak to them about that when they come before you.

Mr. Chairman, in conclusion, I thank you for your patience. I would just like to say that defence procurement is a very large and complex business, as I think you've seen. The responsibilities for procurement are spread through various government departments, and there are several interests that play at any given time within the broad objectives I have mentioned. I believe, while we are obviously not perfect by any stretch of the imagination and we have problems from time to time, we are successfully managing a complex business in a very difficult and complex environment. At the same time as we are doing that, I believe we are in the midst of a major transition to significantly streamline and reform the business in a way in which I think corresponds quite closely to what you'll see with our closest allies.

If I can just give an analogy, Mr. Chairman, many days I feel we are driving the car 100 miles per hour and at the same time we are trying to change the tires. I hope some days we can manage to keep it all together.

Mr. Chairman, thank you for your patience, and I will be pleased to answer any questions you may have.

The Chairman: Thank you very much for leading us through a very complex topic in an efficient way in that certain period of time. With General Motors Diesel in my riding of London—Fanshawe, I know something of how complex and important defence procurement is to this country.

• 1620

I want to remind members that, as I said, we're going to go to a round of questions now. It will be a ten-minute round, but if we would like to have Mr. Lagueux back again, he certainly is agreeable to coming back.

Let me start the ten-minute round with the Reform Party and Mr. Hanger.

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

That was a deluge of information, Mr. Lagueux. I don't know if I can put it all together. It seems like it's just a series of processes and supposedly checks and balances. I would assume, too, that there's a political side to procurement, although I didn't notice anything in your statement there in reference to the political side to any degree.

I would like to bring your attention to some things I see in the procurement process that may be of value. I certainly would also like some questions answered at the end of this very brief outline that I'm going to give, if I may.

Treasury Board guidelines state that the pre-eminence of operational requirements should influence purchases—and I believe that was in your outline, on pages 19 and 22. When the defence department buys equipment, it issues what is called a statement of requirements—and I noticed that you mentioned that on your outline as well. I would suggest that this document is crucial, because by changing a statement of requirements, politicians can ensure that they are not forced to buy a particular item. In this case, I'll use the example of a helicopter, the EH-101 or the Cormorant.

If there is a requirement for a shipboard helicopter to fly for say four hours without landing, and there is only one helicopter that can do that, the government would have to buy that helicopter. However, if politicians could come along and say they want to change that requirement to two hours of flight, there might be six helicopters that could fulfil that role. I don't think we have to think too far back on this. In 1993 the Prime Minister cancelled the deal to replace the search and rescue and the Sea King helicopters. I would have to say he was somewhat embarrassed by the fact that the department turned around and bought some of those same EH-101s to replace the search and rescue helicopters. The Sea King program is also now up for review. The minister was up in question period today and made that comment. I would suggest that the Prime Minister is probably going to be concerned about this, and maybe even somewhat embarrassed by it.

Each member here has a copy of an e-mail. Do you have a copy of it? This e-mail was drafted by you, Mr. Lagueux. It was to the vice-chief of the defence staff, Vice-Admiral Gary Garnett, and it's dated January 20, 1998. That was just a few weeks after the search and rescue helicopter was contracted out. On line 6 you say:

Given what we experienced with [the search and rescue helicopter], we better have our ducks in order if we hope to move this project successfully through approval process.

On lines 10 and 11 you say, “Timing and choice of procurement approach, as well as definition of operational requirements will be key.” Line 9 mentions “top-down management”. And in referring to a meeting, you say on lines 14 and 15, “Not a lot of staff present.”

This memo really sets quite a tone, but none of this really shows much confidence in the prospect of operational requirements carrying the day. Top-down management, I am led to understand, came in the form of SMOC, the senior management oversight committee. On page 34 you mentioned SMOC. I understand, Mr. Lagueux, that you are also a member of that SMOC committee.

Another senior committee is led by Brigadier General Doug Dempster. Brigadier General Dempster's committee met last week, February 24 and 25, to discuss the statement of requirements for the maritime helicopter program and to ensure that a politically acceptable conclusion is reached. A dozen senior departmental policy and communications people attended that meeting. They were talking about operational requirements, a statement of requirements, yet the meeting involved communications and policy people, not experts in the field. Perhaps most disconcerting is the fact that Brigadier General Dempster's committee is receiving political direction from Deputy Prime Minister Herb Gray. In fact, Mr. Gray will be briefed on the committee's progress in the next couple of weeks.

• 1625

My first question: Is it not true that the purpose of your e-mail, these committees that were struck, and Herb Gray's involvement was and is to ensure the selection of a maritime helicopter that would be politically acceptable to the government?

Question two: Have you and Alan Williams, assistant deputy minister at Public Works—and I believe Mr. Williams is going to be coming in front of this committee this week—discussed the question of political interference in the Sea King replacement program?

Question three: In light of the search and rescue contract, was a group of officials, led by people from the Privy Council Office, formed to ensure a politically acceptable solution to the maritime helicopter program?

Mr. Pierre Lagueux: Thank you for your questions, Mr. Hanger. Let me address your questions in order.

First of all, referring to my e-mail, I would not, as I think you have tried to indicate, read anything more into my e-mail than what is exactly there. My e-mail is addressed to the vice-chief of defence staff. It suggests that he, as a very senior military and naval person, and the chief of the air staff—on line 12, I said, speaking to CAS, which is chief of the air staff—and the chief of the maritime staff get together to review the approach that we would take with respect to this particular project.

I think that is a very sensible thing to do at senior levels within the department. You will note these are three very senior military people—the vice-chief of defence staff, the chief of the air staff, and the chief of the maritime staff—who would certainly have a very strong interest and a very strong knowledge base upon which to determine the operational requirements for a Sea King replacement helicopter. It would be sensible that we should get together and review how we would proceed.

I don't see anything, if you like, nefarious about doing that. The purpose of my e-mails is certainly not to derive a solution that is politically acceptable to the government, though I would point out in my presentation I often referred to approvals for contracts and approvals for expenditure authority being made by ministers, being made by Treasury Board, being made by cabinet. Certainly the government is very much a player in giving final approval and very much involved in the decision-making process. After all, I would assume that is why Canadians have elected them to do that. We bring forward to them recommendations based upon the expertise, but in the final analysis it is government that makes the decision.

Certainly my e-mail has nothing to do with what is politically acceptable to the government, but really to ensure that whatever we bring forward is the best recommendation and the best advice to ministers so they can make the proper decision.

Turning to your second question, Mr. Hanger, on have I and Alan Williams discussed the question of political interference in the Sea King replacement program, I cannot recall off the top of my head ever having discussed political interference with Mr. Williams in this or any other project. Certainly we recognize the role that ministers play. We recognize the role of ministers individually and collectively, but we do not view that as political interference. We view that as the right role of ministers and Treasury Board in the process.

Regarding your third question, Mr. Hanger, I am not aware of a group of officials led by people from Privy Council Office formed to ensure a politically acceptable solution. You referred to a group led by General Dempster, and that is true, there is a review group that has been formed under General Dempster, who works for the vice-chief of defence staff, under the direction of the vice-chief of defence staff to review the SOR prior to the senior management oversight committee reviewing it. This is to ensure that the SOR is fully developed and that it considers the scenarios I talked about earlier and is fully defendable in terms of those scenarios.

It's certainly a review process to ensure that those people who have put that SOR together have fully considered the scenarios as a preparatory step to its going before the senior management oversight committee. Now, there is no doubt, and I think that is what my e-mail alludes to, that this particular project is a very large project, a complex project, and there is some sensitivity attached to it. So I think it behoves us as officials—as I said, perhaps tongue in cheek—to ensure we have our ducks in order, or we provide the best advice and recommendations to ministers.

• 1630

The Chairman: Thank you for summarizing how I think most of us see the interface between elected officials and the defence department.

Now I'll go to

[Translation]

The Bloc Québécois. Mr. Laurin, you have 10 minutes.

Mr. René Laurin (Joliette, BQ): Mr. Chairman, I would like to begin by asking Mr. Lagueux a question about page 8 of the document he gave us.

It shows that in 1997, the Department of National Defence awarded 400,000 contracts of less than $25,000, worth over $146 million. It also reports that 80 percent of such purchases were made by acquisition card, which means that someone is authorized to make decisions about such purchases alone. Is that correct?

Mr. Pierre Lagueux: Yes, Mr. Laurin, that's correct.

Mr. René Laurin: This means that between $115 and $120 million per year are spent this way. Do the people entitled to use acquisition cards have a very high level of authority in the Armed Forces?

Mr. Pierre Lagueux: They are all responsible for a budget against which they can make such purchases. They have all been authorized by their base commander to make purchases. Their rank may vary from one unit or base to another, but they are all responsible for managing a budget and have delegated authority to make purchases from their own budget.

Mr. René Laurin: Do these people make the purchases themselves or do they simply authorize others to make them on their behalf?

Mr. Pierre Lagueux: As I was saying in my presentation, Mr. Laurin, they mainly buy very ordinary items, standard items that you or I can buy at stores like Canadian Tire. They are not very expensive or what might be termed military supplies.

Mr. René Laurin: Over a 12 month period, how many purchases under $5,000 could one person make? How much out of a person's budget could be spent on such purchases?

Mr. Pierre Lagueux: I couldn't tell you, Mr. Laurin.

Mr. René Laurin: Could you give me a ballpark amount?

Mr. Pierre Lagueux: I have no idea. I'm sorry. But I could look into it.

Mr. René Laurin: Could this information be passed on to us?

Mr. Pierre Lagueux: We could come up with an estimate, if you like. Yes, I could try to obtain these figures.

Mr. René Laurin: Mr. Chairman, I would like my request recorded, and for Mr. Lagueux, who will probably appear before our committee again under other circumstances, to be able to provide us with the information requested.

[English]

The Chairman: Maybe if Mr. Lagueux has an opportunity he could forward that information to the clerk, just in case he's not back in the near future. Could we request that information? Thank you.

[Translation]

Mr. Laurin.

Mr. René Laurin: Yes, I would like that.

Mr. Chairman, I would be grateful if you could tell me how much time I have left because there is a question I would definitely like to ask at the end.

[English]

The Chairman: You've got about five or six minutes.

[Translation]

Mr. René Laurin: OK. Thank you.

In point three on page 17 of your brief, you say:

The Minister of PWGSC has delegated to the Minister of National Defence part of his contracting authority for procurement.

Mr. Pierre Lagueux: Yes.

Mr. René Laurin: I was surprised to learn this, Mr. Chairman. How can a minister delegate authority delegated to him? Normally we cannot delegate what has been delegated to us. Here, it is as if the Minister of Public Works were delegating authority delegated to him by Cabinet or by statute. The Minister of Public Works is here delegating part of his contracting authority. Is this legal?

• 1635

Mr. Pierre Lagueux: Mr. Laurin, it is a fact that the Minister of Public Works has delegated a rather limited amount of spending authority to the Minister of National Defence, of the order of $50,000, for local purchases. In turn, the Minister of National Defence delegates this spending authority within the Department. Thus some employees have access to acquisition cards that they can use to make purchases up to $5,000. There is therefore further delegation within the Department. While our spending authority is only $5,000, it can be as high as $25,000 in other departments. We chose to keep the limit much lower.

I cannot tell you with any certainty what precise process and policy are involved here. As Treasury Board officials will be appearing shortly before your committee, you could perhaps ask them.

Mr. René Laurin: Mr. Chairman, I know that this question may be more legal than administrative, and I understand that Mr. Lagueux may be unable to answer it. It is nevertheless of interest and I would like to be able to return to it on another occasion.

On page 24, you speak of the interdepartmental committee responsible for reviewing socioeconomic strategies. Who are the members of the committee? How many are there and how are they chosen?

Mr. Pierre Lagueux: Mr. Laurin, the number varies depending on the type of acquisition. As I was saying, the committee is normally chaired by the Minister of Public Works, and we are one of the members. Of course if an acquisition under consideration is for use by the Department of National Defence, we sit on the committee. As we noted in the final line on page 24, several departments usually sit on the committee, including Industry Canada, the regional development agencies, the Department of the Environment and Treasury Board. On page 23, we list the departments involved in supply for Canada's defence which are part of this interdepartmental group.

Mr. René Laurin: I would like to take this somewhat further. Are all departments always represented on the interdepartmental committee? Do the same people always sit on it?

Mr. Pierre Lagueux: The same departments are nearly always represented, but their presence varies with the type of acquisition. Generally, the same key departments, like the Department of Public Works and Industry Canada, along with the regional developments agencies, are there. Other departments may be added for certain types of acquisitions. The same people usually represent the departments.

Mr. René Laurin: Could you give the Clerk of the Committee the names of the members of this interdepartmental committee and the departments they represent?

Mr. Pierre Lagueux: Yes, I believe that would be possible. There is the Senior Advisory Committee.

Mr. René Laurin: Yes, there is also another committee.

Mr. Pierre Lagueux: Once again, the number of departments and representatives may vary. They are usually senior people on the committee, particularly for the Senior Advisory Committee, but they can change.

Mr. René Laurin: I would like you to give us at least the names of the persons who sit permanently on these committees and who they represent.

Mr. Pierre Lagueux: Yes.

Mr. René Laurin: Please. I only have enough time to ask a final question.

Mr. Lagueux, we were given your curriculum vitae. I see that you have considerable experience and that you graduated from military college in 1971. Under Armed Forced statutes are you now considered retired from the Armed Forces?

Mr. Pierre Lagueux: Yes.

Mr. René Laurin: For how many years?

Mr. Pierre Lagueux: Nine years, sir, I believe. I would have to think about it, but I believe it's nine years. Yes.

Mr. René Laurin: Are you currently receiving a pension from the Canadian Armed Forces?

Mr. Pierre Lagueux: Yes, Mr. Laurin.

Mr. René Laurin: And you have been working as Deputy Minister for a number of years now?

Mr. Pierre Lagueux: Yes, Mr. Laurin.

Mr. René Laurin: I was reading a newspaper article which said that a number of retired National Defence employees, like you, had been hired by lobby groups or by private companies that are suppliers to the Department of National Defence and that act as consultants to the Department of National Defence or the Department of Public Works.

• 1640

Don't you think that there are some disadvantages to such a situation when the time comes to discuss matters with former work colleagues in connection with important decisions on goods and services?

Mr. Pierre Lagueux: Mr. Laurin, there is a conflict of interest code governing the hiring of any person who has left the Armed Forces or the Public Service. The code is very clear and it certainly has an impact on what we can and cannot discuss, and what sorts of meetings are disallowed. We comply closely with the existing conflict of interest code.

Mr. René Laurin: Do these people have acquisition cards?

Mr. Pierre Lagueux: Excuse me?

Mr. René Laurin: Do the persons in question have acquisition cards?

Mr. Pierre Lagueux: I don't follow you, Mr. Laurin. Department of National Defence acquisition cards? No.

Mr. René Laurin: Are persons who were retired and who returned to work for the Department of National Defence or Public Works authorized to use acquisition cards?

Mr. Pierre Lagueux: It depends on their job, but I would say that this may sometimes be the case.

Mr. René Laurin: Some. Thank you.

[English]

The Chairman: Thank you, Monsieur Laurin.

We will go to the Liberal side. I would like to just quickly ask one question, and then go to my colleagues.

We sometimes think we're the only country that has problems in our procurement, and that's certainly not so. I recently met with the British high commissioner and the military adviser. They indicated that in July 1998 they completed a strategic defence review, which you're probably aware of, that indicated they certainly had what they felt were some problems in procurement, and tried to suggest ways they could be eliminated.

I wonder what lessons there may be in the work they've already done upon which we could draw. Do you see initiatives they have begun to pursue that we might consider pursuing here in Canada, as we seek to improve our procurement situation, given the realities you explained earlier to us?

Mr. Pierre Lagueux: Thank you, Mr. Chairman.

Certainly a lot of the initiatives we are undertaking are not unique to Canada. We have seen those same initiatives either ahead of us or behind us in countries like Great Britain, the United States, and Australia. I'm in frequent contact with my colleagues who hold similar positions to mine in those countries, and we discuss those types of issues.

As I mentioned earlier, for example, our move to an ISO 9000 approach to quality assurance is something we led in NATO, and other countries have since followed. The move to commercial off-the-shelf, which is one of the major initiatives the U.K. smart procurement initiative talks about, is something we have been looking at since 1992 and even earlier. So they're moving into that now.

We are always looking for new ideas and at ways people are doing things, but the central themes of reducing the overhead, streamlining the process, partnering with industry, getting industry more involved, performance-based and commercial off-the-shelf are common themes you'll find in most countries in the world today.

The Chairman: Thank you very much.

I would just indicate to the committee that in meeting with the British high commissioner, Sir Anthony Goodenough, he indicated they would be very happy to have this committee, if we wished, explore this issue further with them, and that could possibly involve a trip to the U.K. But they were very much interested in helping us explore this issue.

Thank you for that point.

Mr. Pierre Lagueux: In recognizing your interest, I have already passed on to the clerk of the committee the name of a contact—a senior person in the United States—who is responsible for the defence acquisition reform there. I will also pass on the name of the person who has been responsible for the smart procurement initiative in the U.K.

The Chairman: Thank you very much. If we get all-party cooperation on this, we hope to do some useful very task-oriented travel to look at these issues.

I want to go to other colleagues on the government side, Mr. O'Reilly first.

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.): Thank you very much, Mr. Chairman.

Thank you, Mr. Lagueux, for attending. I will try not to ask too many Scott Taylor questions.

• 1645

Could you explain to us the export market at $1.8 billion and 16,500 jobs? Could you just give us a little detail on that first of all? I'll group my questions, if I may. I also want to know the number of government departments involved in the procurement process. I'll give you those two to start with.

Mr. Pierre Lagueux: Thank you, sir.

As I've pointed out, this is a study that was done by the Canadian Defence Industry Association themselves, so they aren't figures we have put together. I understand they're updating the study now, so we'll soon be providing updated figures.

Our industry, of course, is not a major world exporter in terms of defence products, although we tend to export in a certain category of goods. We tend to have some niche capabilities for which we are world-recognized. Certainly the chairman would be well aware that the diesel division of General Motors in London, Ontario, for example, in the building of light armoured vehicles is—

Mr. John O'Reilly: He brags about that a lot.

The Chairman: It's a great product and a great city.

Mr. Pierre Lagueux: —certainly well known around the world and very successful. So there are those types of products we produce and sell around the world. There are other areas, such as ammunition, small arms, and those types of things we are able to produce.

In more technical areas, here in Ottawa you have the CDC in acoustic sonars and so on, with world-class capabilities that are able to penetrate markets around the world. But by and large, we are not a large producer of military goods.

We are also able to compete, primarily in the U.S. market, for repair and overhaul services and those types of things. By and large, even though we're small, quite often our capabilities are integrated into the American defence base, and that is recognized across the border, as they speak of the North American technology and industrial base, as opposed to strictly the United States one. Our companies, which are quite often subsidiaries of American companies, are fully integrated into that and have access to the larger American demand. Our export market is primarily to United States, but not exclusively.

It's becoming harder and harder for our industry to export because of changing world conditions. The defence budgets around the world are getting smaller, which means companies around the world are getting much more competitive. We've seen in many cases countries are giving more and more support to their industries. United States, France and Great Britain, for example, all have large government organizations to support exports, and defence exports, in particular. We don't have that here in Canada. We tend to give some support to our industry, but we don't have a budget in Defence for that sort of thing, for example.

Mr. John O'Reilly: What is the number of government departments involved in procurement?

Mr. Pierre Lagueux: As I tried to answer to Mr. Laurin as well, it varies depending on the procurement. When we're talking about small procurements, we do them ourselves—strictly DND procurements like those acquisition-card type things.

Normally at a minimum you'll find, in most procurements that are over our delegated authority for goods, Public Works and Government Services Canada is involved with us because they are the contracting agent for goods on behalf of the Government of Canada. With anything over $5,000 in goods, they are involved with us.

If we move it beyond that into the $2 million to $100 million range, where there is potential for socio-economic and other benefits, other government departments can play. Certainly Industry Canada and the regional development agencies are looking for industrial benefits and regional benefits.

If we were looking at buying vehicles and there was an interest in us buying non-polluting vehicles, the Department of Environment would assist in that particular procurement. Aboriginal business development is a key thrust and objective for the government now, so they could be involved. So it depends on what we're buying and what opportunities there are, what government departments will become involved.

In large acquisitions, such as a major crown project that goes over $100 million, of course there is much more opportunity to look at the broader government objectives, bearing in mind that meeting the operational requirements is always the number one objective. But there is more opportunity there to meet other objectives; therefore other government departments will become involved.

• 1650

So it is not a fixed number. It depends on the acquisitions. As I've shown on slide 23, it can involve almost all these government departments in a particularly large type of acquisition, or it can involve strictly ourselves in Public Works and Government Services Canada.

Mr. John O'Reilly: Thank you.

The other question I have is about the modernization of our equipment. How out of date is our equipment in comparison to that of our allies? What would you recommend to this committee to do in order to change that process?

Mr. Pierre Lagueux: I guess it depends on which equipment we're talking about. In certain areas, there is no doubt that our equipment needs modernization. But if you look at the navy's new Canadian patrol frigates, it has new maritime coastal defence vessels, and we're also procuring four submarines for them, so I think they're not in bad shape. The commander of the navy may have different thoughts on that, though.

For the army, we're procuring for them the new tactical command communication control system. They have new light armoured reconnaissance vehicles, we're procuring new APCs for them, we're getting new environmental clothing, and so on. So while there are certainly other areas in which they are weak, I would argue that they're not too bad. Again, though, the commander of the army may have different views on that.

For the air force, as you know, we have on order the fifteen Cormorant helicopters for search and rescue, and they received the last of the 100 UTTH, the Bell 412 helicopters, a few years ago. But I think our greatest need for modernization is with the air force. Of course, this goes in cycles. We started modernizing the air force first many years ago with the Aurora and the CF-18. Now, of course, these airplanes are getting old and need modernization. And the Sea Kings have been around for a long time, of course, and they need replacement. Those are the key areas that one needs to focus on now in terms of major projects.

The Chairman: Thank you, Mr. O'Reilly.

Mr. Pratt, and then Mr. Bertrand.

Mr. David Pratt (Nepean—Carleton, Lib.): Thank you, Mr. Chairman.

Thank you for being here, Mr. Lagueux.

There is probably a certain tension, I suppose, between the objectives of obtaining commercial, off-the-shelf technology and being able to create a defence procurement strategy that emphasizes industrial and regional benefits. On one hand, you want to get material at the lowest possible price while having it do what you actually want it to do. On the other hand, you want to make sure that, throughout the country, the people of Canada benefit in terms of jobs and expertise as far as defence spending is concerned within Canada.

Would you say the 1994 white paper has bumped the IRBs back from where they were before then? I think it's probably safe to say that the Mulroney government gave IRBs a bad name in terms of the CF-18 maintenance contract, but would you say IRBs have taken a back seat to the quest for commercial, off-the-shelf materiel?

As well, the government has spoken over the last number of years about the whole business of the aerospace industry as a targeted growth industry. That has become very important in government policy. We've seen Canada moving up steadily over the years in terms of aerospace. How plugged in would you say defence is at this point in terms of the overall government strategy, and as far as targeted growth industries are concerned?

Mr. Pierre Lagueux: Thank you, Mr. Pratt.

First of all, I think you're quite right in your observation that as we move more toward commercial, off-the-shelf equipment, there is a tension vis-à-vis industrial and regional benefits and how one caters to that tension. If you're going to buy unique, made-in-Canada military goods, then of course there's much more opportunity for industrial and regional benefits than there is if you go to commercial, off-the-shelf.

Let me explain that last comment further. First of all, the policy and responsibility to oversee industrial regional benefits does not lie with National Defence, it lies with Industry Canada. I think this group will be meeting officials from Industry Canada in the next week or so, and you may want to pursue that question with them.

• 1655

From my perspective, there is not only the opportunity to obtain direct industrial benefits and direct regional benefits, but there's also the opportunity to obtain what we call indirect industrial and regional benefits. Certainly, for example, when we let the contract for the Cormorant helicopters, while it was very difficult, and we did not necessarily want to pursue to a great degree direct industrial benefits because we were buying an off-the-shelf helicopter—and therefore we didn't want to have the contractor change his suppliers, his source of supply, and reset a whole supplier network in place that would defeat the off-the-shelf approach, because he would have to recertify all the suppliers and the cost and everything else included there—we did ensure that the contractor signed up to 100% equivalent value in industrial regional benefits, and these will be met through indirect.

So in many cases a lot of these suppliers are very large suppliers, have very different businesses they're in, and can place orders for different types of goods, and can have different types of technology transfer into Canada. These are not necessarily directly linked to what we procure, but we can leverage that into other areas. So with commercial off-the-shelf that's what we're seeing, a shift from benefits directly associated with the procurement and the production of what we're buying to other areas that will benefit Canada and Canadian business and Canadian technology. That is overseen and ensured by the Department of Industry Canada and not by us.

I think there is a shift there in terms of what we would have seen in the past to what we now see.

The Chairman: Thank you. That's the ten minutes for the government side.

I'm going to go to Mr. Earle, NDP, for ten minutes.

[Translation]

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

I would like to begin by saying that your presentation was excellent. It was very clear., very precise and very easy to understand.

I have many questions, but I know I won't have enough time to ask all of them.

[English]

On page 5 of your presentation you have a diagram showing, at the National Defence Headquarters, the amount spent on operations and maintenance as being $375 million, 35% of the total budget, higher than the various environmental operations of land, sea, and air. What is the rationale for that?

Mr. Pierre Lagueux: I guess in the short answer, Mr. Earle, the rationale is the poorly presented slide. What is shown there is $375 million being spent by units across Canada including NDHQ, so it's not NDHQ that's spending $375 million. I only noticed that presentation myself, and so the rationale is really a poorly presented slide. I apologize for that. It is misleading the way you could read it. It's units across Canada that spend this amount.

Mr. Gordon Earle: The other question in connection with that is do these figures include salaries of the people who were involved?

Mr. Pierre Lagueux: No, this is straight procurement of goods and services.

Mr. Gordon Earle: Okay. On page 7, talking about the value of the inventory, you mentioned it did not include airplanes, ships, etc. Where do they come in? Why is that?

Mr. Pierre Lagueux: Well, I'm just talking about inventory here, Mr. Earle, just what we have in stock in our depots and bases and so on.

Mr. Gordon Earle: I see.

Mr. Pierre Lagueux: We have about 850,000 line items of stock valued at about $8 billion. I have not included what we have materially in use, which includes airplanes and ships and so on.

Mr. Gordon Earle: That would be listed separately?

Mr. Pierre Lagueux: That's separate, and of course if you then add up the total value of everything we own, it's much bigger, but I'm just talking about what we have in inventory, which is held in depots and bases.

Mr. Gordon Earle: Okay. On page 9, when we speak about Canadian International Trade Tribunal, and you talk about the number of contracts, does this Canadian International Trade Tribunal include dealings with NAFTA or the WTO?

Mr. Pierre Lagueux: They were originally formed to handle challenges and complaints as a result of international trade agreements, and they've kept that name, but they now handle any challenges against any contracts that are put up by the Government of Canada. Contracts over $25,000 are subject to those agreements. So any challenges that are brought forward under the agreement on internal trade are heard by the CITT even though they have “international” in their name.

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Mr. Gordon Earle: Who usually challenges? With regard to the two challenges that were upheld, can you tell us a bit about those?

Mr. Pierre Lagueux: I happen to have that, Mr. Earle. The challenges are usually brought by any contractor or bidder who feels that their bid has not been properly evaluated, that the procurement has not been done according to the rules, or for whatever reason they feel they have not been properly dealt with in terms of the procurement process of the Government of Canada. By the way the CITT handles challenges on any government procurement, not just DND's.

With regard to the two challenges that were upheld, one involved a construction contract where a company challenged the approach to some firefighter training systems that were being produced. They challenged that DND awarded the contract to a supplier whose bid was not compliant with a mandatory requirement. They were awarded their reasonable costs in preparing their response as their complaint was found to be substantiated.

The second one had to do with a defence research contract. A company challenged that one based on the fact that some critical information had not been provided to all competing bidders. In this particular case the CITT upheld that challenge and recommended that the document they contested be made available to all bidders and that the proposal be allowed to continue in that way.

Mr. Gordon Earle: Very quickly, would these two challenges be from outside Canada or inside Canada?

Mr. Pierre Lagueux: They were both Canadian companies.

Mr. Gordon Earle: You also mentioned that the CITT handles challenges other than for National Defence, but these numbers are specifically National Defence numbers.

Mr. Pierre Lagueux: Yes. If you add up the numbers, it actually comes out to a little over 5,500 contracts of over $25,000 that we let in 1997.

Mr. Gordon Earle: Do I have a little more time?

The Chairman: Yes, you do.

Mr. Gordon Earle: Thank you.

On page 30 where you talk about acquisition cards for amounts less than $5,000, are there any limits on the number of purchases that can be made with these cards other than the budget itself? Also, are there any limits on the number of acquisition cards? Who exactly is entitled to hold these cards?

Mr. Pierre Lagueux: Clearly, contract splitting is not allowed under government contract regulations, so you can't use the card to pay $4,999 and $4,999 to buy a $10,000 item, for example.

There are specific guidelines with regard to giving out the acquisition cards and who has them. A list is maintained of who has them on each base and station. There are a very large number of people who have them on the various bases and stations, but records are maintained on that.

Mr. Gordon Earle: On Canadian content policy, you say that if sufficient competition exists, normally three suppliers, we keep it in Canada. What would happen if a number of Canadian firms got together and felt that they as a consortium could provide what you require in terms of equipment? Would it then be possible to sole source that to that consortium, if the overall intent is to keep the industry and the spin-off effects in Canada?

Mr. Pierre Lagueux: The Canadian content policy applies when international treaties such as the NAFTA or the World Trade Organization don't apply. As I said earlier, in the case of defence, those requirements are specifically excluded from those types of international agreements, and therefore we can, if we wish, apply the Canadian content policy.

When it comes to the Canadian content policy, I think one has to be careful, because we're now getting more and more challenges from our trading partners who look at Canadian content policy as a way to keep their industries from competing in Canada. As more and more countries move toward an open process under which Canadian companies can compete in their countries, we need to be careful as to how we limit their ability to compete in Canada.

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As I said, by and large, our companies must export and must be able to compete offshore to remain viable. And while we can close the borders here and allow Canadian companies to compete only in Canada, if then retaliation occurs and they can't compete offshore then we're really not ahead of the game here, because they really have to be able to compete offshore. So yes, as you said, if Canadian companies get together and form a consortium, if there is a logical reason to sole-source, one can always look at that, but we need to be careful in terms of how that impacts on offshore competitors and what type of reaction it can engender in our trading partners.

The Chairman: Last question, Mr. Earle.

Mr. Gordon Earle: On page 31 you talk about contracts being awarded by Public Works and Government Services and approved either by the minister or a delegate or by Treasury Board, and I think you also said or by a delegated official. How much delegation usually takes place in those kinds of situations?

Mr. Pierre Lagueux: Contracts, other than the $5,000 ones—and I'm talking here for goods, not for services—are normally let by Public Works and Government Services Canada. I think in an earlier slide I mentioned that normally if it goes to the open bidding process the Minister of Public Works has up to $40 million delegated from Treasury Board for him to sign the contract. Over and above that, it would have to go to Treasury Board. This $40 million is a generalization, though, I hasten to add, because it depends on the type of commodity and so on and so on. The Minister of Public Works has delegated to his officials the authority to sign contracts on his behalf, and depending on the official, depending on the level in the organization, they have various signing authorities for different contracts.

Most of our contracts are in fact signed off, approved, by officials within a department, given the limits and the levels we're talking about here. I think you'll have my colleague Alan Williams, from Public Works and Government Services Canada, here shortly, and he can certainly tell you what the various levels are and who can approve what contract level within their department. Or, if you wish, I can obtain that for you.

The Chairman: Thank you, Mr. Earle. Mr. Williams will be here as a witness on Thursday. I bring that to the attention of my colleagues.

Now, from the Progressive Conservative Party, Mr. Price, ten minutes.

Mr. David Price (Compton—Stanstead, PC): Thank you, Mr. Chairman.

Thank you, Mr. Lagueux. It was a very good presentation. I think it answered a lot of questions we were probably already prepared to ask, so that helps. There are still some others, though.

In looking at your CV, I see you were around during the original procurement strategy for the EH-101. So you worked through that process and I imagine you're quite familiar with it. So here we go, we're starting again in a way. I'm wondering, with all the work that had been done, particularly on the platform side, which probably won't change that much—I realize equipment and modules and that type of thing will change, as needs have changed over the years—if we start going into a procurement strategy like that, how much time does it take and how much does it cost just to initiate this process? I'm talking of let's say the maritime helicopter project, a major crown project.

Mr. Pierre Lagueux: It's hard to give a specific answer to that, Mr. Price. Obviously major crown projects by definition are large, complex, costly, high-risk types of projects, so they take considerable effort and time to work our way through in some cases. In some cases they can be actioned fairly quickly, and again I refer to General Motors Diesel Division in London, where the armoured personnel carrier project was approved fairly quickly. But there were some good sound reasons for that: General Motors being the only producer of light armoured vehicles in Canada, the need being urgent, the vehicle being an outstanding world-class vehicle, and so on, the choice was fairly quick and easy to make. Others are much more complex and not so obvious, and therefore they'll take much more time and much more effort.

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Mr. David Price: In the case of the maritime helicopter, though, it's one for which you do have a fair amount of background already started. And I should say that a year ago the minister, in a written response to a question I asked, told me there were, I believe, 22 people already named to sit and look at the procurement strategy for this project. Are those people doing anything at this point?

Mr. Pierre Lagueux: I would hope so, Mr. Price.

Again, if you refer back to my presentation, we're talking about the different steps in the capital procurement process. Since we have not gone to government for approval of any procurement process or funding at this point, these are people who work within the matrix of the organization, if you like, and are involved in this particular project. They are primarily of course looking at the statement of operational requirements in terms of what is required here, defining that, defining what is available in the world markets and really focusing in terms of what the real operational need is.

Mr. David Price: But at this point obviously money is being spent right now just to set up the start of the procurement strategy even though it hasn't actually started. It's just an initiation at this point, the way I understand it.

Mr. Pierre Lagueux: At this point it's initiation. The money being spent is money that is part of departmental overhead, if I can call it that. These are people who are there. We haven't dedicated funds and dedicated a project office strictly to that at this particular point, so it's part of departmental overhead. This is not the only project; there are many projects in early stages that are being identified, being worked on in terms of doing some early development work on those projects. So this is one of several, but it is clearly a large one and one we would like to see progress soon.

Mr. David Price: What are your top five priorities in terms of major crown projects right now?

Mr. Pierre Lagueux: I think in the white paper of 1994 there were four projects then that were the top projects. We've proceeded with three of them. The maritime helicopter project is the fourth one, so I would suggest that it is probably the top project in terms of the department. We also have the—

Mr. David Price: We saw the CF-18 project move up.

Mr. Pierre Lagueux: —the CF-18, the Aurora project; these are projects that would follow after the Sea King. After that, there will be other projects that will need to be prioritized. There's a requirement of the army to look at an armoured combat vehicle. There's a requirement from the navy's point of view to replace our aging fleet of supply ships and so on.

So all these projects need to be prioritized. I would guess if you're talking about five large projects, those are about the top five very large projects. There are a whole bunch of other projects, military and satellite communication projects and so on, that must be fitted in there as well.

Mr. David Price: In the CF-18 project there was the talk of selling off some planes to help support the cost. How would you handle that in the procurement process of upgrading the planes? As we heard from the Auditor General, just how that would be handled is a touchy spot as far as he is concerned, since the military doesn't have the authority to sell off this equipment.

Mr. Pierre Lagueux: I'm sorry, Mr. Price, I should have anticipated that question, because I came across your comments and I meant to look into that. I'm not familiar with the fact of selling off CF-18s to pay for the price of that project. Certainly it depends on the number of airplanes we want to upgrade. We're talking about potentially a smaller number of airplanes than we do now have in service being fully upgraded. Therefore there would be a surplus of airplanes and we perhaps could trade those in. I think that's what we would be looking at, to trade those in with potentially the regional manufacturer, McDonell Douglas, for example, which could be involved in this process as a trade-in—

Mr. David Price: More like an exchange.

Mr. Pierre Lagueux: Then you have an exchange, and therefore it lowers the cost of the project. So that's how you would do it, and potentially they could have a buyer somewhere who would be interested potentially in also upgrading those airplanes as well. But what we're talking about is very speculative at this time.

Mr. David Price: In your presentation you talked about the pre-facilitated contracting of your goods and services and multi-year contracts. I've gone through this type of project in other businesses, and they went through that and they've gone back the other way because they found the problem is dealing with the subcontractors and the sub-subcontractors.

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You were having a problem of not being able to have a control on them, and yet you're going in that direction now. I'm asking why. Also, as a multi-year contract, is it renewable every year? How long do these contracts normally go?

Mr. Pierre Lagueux: I guess your comment is there is no magic solution to the problems, and I would agree with that, Mr. Price. But I think the problem we're facing now in many cases is that we have.... I'll give you an example of what we've done in the case of a contract for packaging materials. We buy lots of packaging materials, and we had tens and tens of different contracts, all for different items in packaging material. We decided to bundle all that together and issue one contract for packaging materials. Therefore, in terms of our oversight of contracts, we now have one contract instead of over a hundred contracts to manage, to oversee, and so on.

In our contract we have placed clauses to ensure that the person who gets the contract must involve subcontractors, must involve small businesses, and so on. Therefore he is responsible to do that, as opposed to us overseeing all that. It has saved us tremendously in manpower and in the amount of time we have to regenerate contracts and so on.

Mr. David Price: Have you been able to maintain quality, though?

Mr. Pierre Lagueux: Yes, we've done very well. We're looking at, as you've said, a certain number of years. Again, we're looking at five years, maybe longer, in terms of contract—not to renew each year, but to put them in place so that each year then from a personnel workforce point of view we're not redoing contracts for basic items, bundling these things together.

We normally try to have off-ramps in the contracts. If the performance isn't there we can get out of the contract, maintaining the quality and the standard in the contract. But by and large the idea is to reduce the amount of paper, the amount of flow between ourselves and Public Works; to bundle things together and to put them in place; and also to ensure on a pre-facilitated basis that the delivery then goes directly to customers, as opposed to going through our warehouses and so on, again reducing our inventory, reducing our distribution costs.

Mr. David Price: In your procurement, where you don't have, let's say, two Canadian suppliers, you only have one and you have to go out of country on bidding, is there any method set in there to give—I hate to say the word “favouritism”, but that's what it comes down to—is there a method to give favouritism to a Canadian supplier?

Mr. Pierre Lagueux: If we open it up on the open bidding process and there is no Canadian content rule applied, then it's open to the best bid, which can be the lowest cost or best value, depending on how we approach it. Certainly under NAFTA and World Trade Organization rules and so on, we need to be very careful in terms of doing what you've suggested. Certainly when Canadian companies compete in the United States or the U.K., we want to make sure they have fair, open access to those contracts.

Mr. David Price: Thank you.

The Chairman: Before we go to the five-minute round, it seems there is quite a bit of interest you've generated, Mr. Lagueux, and I'm not surprised at that. If you're available Thursday, if the committee wants, we could devote the first hour Thursday to continuing with this witness and then add in others. Are you available Thursday?

Mr. Pierre Lagueux: I'm at your convenience, sir.

The Chairman: Okay. So is there a consensus to continue with this witness at 9 a.m. for the first hour and then go to the schedule?

Some hon. members: Agreed.

The Chairman: Okay, thank you very much.

Now we'll start the five-minute round. Mr. Hanger.

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

Mr. Lagueux, you mentioned what I consider to be that rather intriguing memo you directed to Vice-Chief of Defence Staff Garnett. You said General Dempster's committee was meeting to discuss the statement of requirements with senior ministers. What did you mean by that, and what do senior ministers know about a statement of requirements out of the military?

Mr. Pierre Lagueux: I'm sorry, Mr. Hanger, there must have been a misunderstanding.

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I think what I said was that General Dempster's committee—if we can call it that, because essentially it involves General Dempster and a group of senior people with a variety of experience, including procurement and acquisition experience—gets together to review what is a draft statement of operational requirements. It has not been finalized yet. It's still being worked on. They are reviewing this not on behalf of senior ministers but before it is viewed by the senior management oversight committee, which you correctly pointed out I would sit on. So it's not for senior ministers, Mr. Hanger. I'm sorry if there's a misunderstanding there.

Mr. Art Hanger: That's what I understood you to say.

Mr. Pierre Lagueux: I'm sorry if that's a misunderstanding.

Mr. Art Hanger: I still find it odd that if there weren't senior ministers meeting with General Dempster, people such as the policy and communications staff would be meeting with the general to discuss operational requirements. What do policy and communications staff have to do with a statement of requirements or any changes thereof?

Mr. Pierre Lagueux: As I said, Mr. Hanger, a variety of people are involved in this committee, and it may well be that policy and communications people are included. I would stress, though, first on the policy side, that I think people from the assistant deputy minister for policy's organization have a very valid role to play in this committee, and certainly the ADM for policy sits on the senior management oversight committee. As we look at our equipment procurements and fit them into our scenarios, there is very much a policy dimension in terms of what we are acquiring to ensure that what we acquire fits defence policy as approved by government. So I think there's a very valid role for policy people to play there.

On the communications side, I think people were selected for the committee in terms of reviewing the SOR and also on the basis of their ability to question the SOR, to ensure that what is being produced has been well thought through, that the requirement is valid, and that nothing has been overlooked. So I think we're putting fresh minds on the committee to review it.

Mr. Art Hanger: There could also be another reason. I don't think it's out of the realm of possibility to have any kind of political interference in a procurement process. It could also very well be that this meeting with the policy and communications staff would be just to make sure that the procurement of Canada's maritime helicopter is more politically acceptable to the Liberal government.

I'm curious, Mr. Lagueux, about General Dempster's committee. Why would they be receiving direction from Deputy Prime Minister Herb Gray?

Mr. Pierre Lagueux: Sir, I'm not aware that they have received any direction from Deputy Prime Minister Herb Gray.

Mr. Art Hanger: They will be reporting back to him in the next couple of weeks.

Mr. Pierre Lagueux: I'm not aware of that, sir, and I don't think that is correct.

The Chairman: Maybe, Mr. Hanger, if you have some way you could verify that for the committee, you could bring that along, and we'd be happy to look at it.

Mr. Art Hanger: These are questions I'm posing to Mr. Lagueux.

The Chairman: Yes, but he has indicated he has no knowledge of it. But if you have definitive proof of that, I know we'd all be interested in seeing it.

Mr. Art Hanger: I'd like to refer back to another point you made in reference to Dempster's committee. You made mention that Canadians elect their politicians to make these sorts of decisions. Again, you were referring to a statement of requirements and the like in reference to the initial comment when we were talking about Dempster's committee meeting with senior ministers, which actually was your term. I have to disagree with you. I don't think Canadians elect their members to do any such thing. What do the members of Parliament or politicians in general have to do with operational requirements for the military?

Mr. Pierre Lagueux: Again, Mr. Hanger, I apologize if we have a misunderstanding here. I don't think I ever said that ministers get involved in a statement of operational requirements, and if I gave that impression, I apologize for that. Clearly, the statement of operational requirements is put together by the department based on the operational requirements they see as being valid.

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What I infer with respect to elected politicians is that we as officials will present our recommendations and our best judgment to them, and it is up to them in the final analysis to make the final decisions with respect to these large procurements, which after all involve substantial amounts of taxpayers' money.

The Chairman: I think you made it clear, Mr. Lagueux, that the ultimate authority in a democratic system of government as we understand it in Canada is the civilian authority. It is the ultimate authority in defence matters, as it is in all other matters.

Mr. Bertrand, for five minutes.

[Translation]

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Mr. Lagueux, I listened to your presentation with considerable interest. Like my Reform Party Colleague, I believe that the Department of National Defence supply system is rather cumbersome.

Since you work at the Department every day, could you make a few suggestions to members of our committee about how the system might be improved or rationalized?

Mr. Pierre Lagueux: Mr. Bertrand, it is true that the system is rather complex and possibly cumbersome, as you say. I wish to point out that the system at the Department of National Defence, is also in use in all federal departments. The policies we follow come from Treasury Board. I understand that officials from that department will be appearing before you, and this will certainly give you the opportunity to ask them questions about this.

When departments are preparing for major expenditures and large-scale projects, it is important that the system contain checks and balances, as we say in English. It is important to conduct effective analyses and to study all the options.

If the Department of National Defence were allowed to spend money as it saw fit and to buy everything it wanted, I believe there would be a lot of criticism. The goal then is to strike a balance in terms of the process, time and complexity, and to ensure that the money is spent only after all the options have been carefully studied and proper conclusions and recommendations reached.

Mr. Robert Bertrand: If I understand you correctly, you are satisfied with the current system.

Mr. Pierre Lagueux: As I was saying in my presentation, we are introducing some reforms and forging partnerships with industry to make the process more effective and faster.

Mr. Robert Bertrand: Thank you.

[English]

The Chairman: More questions? If not, then I have Mr. Richardson and Mr. Peric. It's up to you.

Mr. Robert Bertrand: Okay, you can go with Mr. Richardson.

The Chairman: Mr. Richardson, you have two or three minutes with the witness.

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

Our visit with the Auditor General was a rather interesting visit. I don't want to go through the whole preamble, but he was less than flattering in describing the procurement system at National Defence Headquarters based on his report.

What I saw today in your presentation was a fairly logical, flowing system by which you made your decisions. Was this slide presentation made after his report, or was it concurrent with his report?

Mr. Pierre Lagueux: Mr. Richardson, what I put together was the process. It's not a before and after the Auditor General, no. There are certain recommendations he made, for example, with respect to scenarios and so on, which are now part of the process. So we have acted on some of his recommendations, indeed.

Mr. John Richardson: Well, I'm going to go with some quick ones, because they've been around and they've been a sore in the shoes of a lot of people for a long time.

Reserve pay—almost fifteen years, and it's still a disaster. How are we ever going to get pay on time to the people who earn their money?

Mr. Pierre Lagueux: I will acknowledge, Mr. Richardson, that the reserve pay system project has certainly not been a stellar project in our history. Large ADP systems have always been difficult, no matter with DND or other government departments or in the business world in general. We are working hard in terms of coming up with a different solution to do that. I haven't got an answer in terms of where exactly we are in the reserve pay, but I can find out and get back to you on that one. We recognize that as something that needs immediate action.

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Mr. John Richardson: The next one is TCCS, the tactical command and control system. Where is it now? I can remember at FMC headquarters in the late 1980s, when it was going to be there tomorrow. Of course tomorrow never comes.

Mr. Pierre Lagueux: I don't recall it ever coming in tomorrow, Mr. Richardson. It is a $1.6 billion project. It's a very large and complex project. We've had some difficulties with the project, but I think we're seeing our way through. Deliveries are starting this coming year. We have already delivered some equipment, some radios.

We are very positive with respect to what is happening there now. We think when we deliver this project, we'll have not only a world-class system, but certainly beyond what most of our allies have in terms of a fully integrated command-and-control communications system. Deliveries are about to start.

Mr. John Richardson: I gather that's one of the vehicles we can put into operation as soon as we get delivery of this.

Mr. Pierre Lagueux: Yes.

Mr. John Richardson: I have one last question, on the Griffin. There are two counts against it: the electrostatic on it, and the lift capacity of the helicopter. Was this a marriage of convenience, or was it the only thing we had around?

Mr. Pierre Lagueux: Are you asking about the helicopter?

Mr. John Richardson: Yes.

Mr. Pierre Lagueux: I think we had an urgent requirement for new helicopters. As you know, we had got rid of the Chinook by then and we were looking at rationalizing our helicopter fleets. In the policy of 1994 we said we wanted to rationalize fleets of fewer numbers of helicopters, fewer numbers of different types of equipment. It made good sense to go to a different helicopter.

Again, as in the case of General Motors Diesel Division and their LAV vehicle, the Bell helicopter made in Canada meets our requirements and was able to be procured fairly quickly. So a decision was made to procure that particular helicopter.

I should point out that while the Auditor General has been certainly quite critical of that helicopter, as far as the commander of the army is concerned and as far as the pilots are concerned, it fully meets our requirement for a utility-type helicopter. It is not a medium-lift helicopter; it is a utility type of helicopter. It has shown great performance in Haiti and is performing very well in Bosnia.

Mr. John Richardson: Thank you.

The Chairman: Thank you very much, Mr. Lagueux, on behalf of my colleagues on the committee. You've certainly generated some interesting discussion. We will be happy to have you back with us on Thursday morning at nine o'clock as we continue this important topic. Thank you.

This meeting is adjourned.