GOVERNMENT RESPONSE TO THE REPORT OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS

 

CHAPTER FOUR OF THE SEPTEMBER 2002 STATUS REPORT OF THE AUDITOR GENERAL OF CANADA (NATIONAL DEFENCE – NATO FLYING TRAINING IN CANADA)

 

 

Introduction

 

The Government of Canada has considered carefully the Report of the Standing Committee on Public Accounts on Chapter Four of the September 2002 Status Report of the Auditor General of Canada on the NATO Flying Training in Canada program.  The Government has taken note of the six recommendations contained in the Report.

 

The Government remains committed to the NATO Flying Training in Canada program.  It represents an innovative way of providing high-quality military pilot training at a lower cost than previous training systems, or any other training option available in the foreseeable future.   The Government does recognize that there have been some program management problems, especially during the difficult start-up period.  Considering the complexity of this program, however, many of the challenges that appeared during initial implementation were to be expected.  Most of these issues, such as ensuring that the Government is appropriately compensated by the prime contractor for training that was not received, are in the process of being addressed, if they have not already been resolved. 

 

Despite these obstacles, the Government considers the NATO Flying Training in Canada program to be the best long-term option for the training of Canada’s military pilots.  Furthermore, from an international perspective the program is an unqualified success.  In addition to Canadian Forces personnel, student pilots and/or instructors from Denmark, Sweden, Hungary, Italy, Singapore, the United Kingdom, Finland, Germany, and France currently participate in the program.  As the program evolves, NATO Flying Training in Canada is sure to become the recognized benchmark for future pilot training systems.

 

 

The Response

 

This Response provides a concise overview of the Government’s position with respect to each recommendation.  This Response also provides information on the plans and initiatives already in place with respect to the management of the NATO Flying Training in Canada program.

 

 

Recommendation 1:  That the Department of National Defence work closely with the prime contractor for the NATO Flying Training in Canada program to produce an action plan that will demonstrate how and when unused training that has been paid for will be made up.  This plan must include milestones and target implementation dates, and be tabled with the Committee no later than 31 October 2003.

 

Due to start-up problems in the NATO Flying Training in Canada program, the Department of National Defence (DND) has paid Bombardier Canada Inc. for training that has never been received.  For instance, although DND paid for the first four courses of the program, they had to be cancelled without reimbursement because of the late delivery of the Harvard II aircraft (the replacement for the old Tutor training aircraft) and simulators.

 

The NATO Flying Training in Canada contract does require Bombardier, as the prime contractor, to reschedule any surplus training over the life of the contract, or at the end of the contract at a reduced cost.  DND, however, has reviewed its long-term pilot training requirements and has determined that the training positions currently provided for within the existing contract will accommodate all known and forecasted pilot training needs at this time.

 

As a result, officials from DND and Public Works and Government Services Canada (PWGSC) are involved in ongoing negotiations with Bombardier to secure appropriate compensation for the training that was not received and that the Auditor General identified in her 2002 Report.  Some of the options being considered are:

 

• Crediting the Crown with liquidated damages for late delivery of the Harvard II aircraft;

 

• Providing free flight instructor courses to the Crown for sale to foreign countries;

 

• Granting the Crown the right to sell an increased number of surplus Canadian training slots to foreign countries; and/or,

 

• Providing additional proficiency (extra flying practice) and conversion (flying practice on different types of aircraft) flying training at a reduced cost.

 

Although parties are motivated to find the most appropriate compensation arrangement that is consistent with the contract and meets the air force’s training needs, negotiations could take some time.  All parties do recognize, however, that this issue needs to be settled before the Crown agrees to an assignment of the NATO Flying Training in Canada contract to any company that may purchase Bombardier’s Aviation Training Division, under which it manages its responsibilities for the program.  This Division is currently up for sale.

 

DND officials are available to appear before the Committee at its convenience once negotiations are complete to outline how the issue of compensation for the flying training that was never received, will ultimately be resolved.

 

 

Recommendation 2:  That the Department of National Defence begins immediately to explore opportunities to recoup part of monies paid for unused training, and table a status report on this effort at the same time that it produces an action plan for scheduling additional training.

 

The NATO Flying Training in Canada contract does not allow for financial compensation for flying training that was not received.  Instead, any surplus training that has been paid for must be rescheduled over the life of the contract, or at the end of the contract at a reduced cost.  After reviewing its long-term requirements for pilot training, however, DND has determined that the training positions currently provided for within the existing contract will accommodate all known and forecasted pilot training needs at this time.  Thus, other forms of compensation must be found.  As a result, officials from DND and PWGSC are involved in ongoing negotiations with Bombardier to secure appropriate compensation.  Again, DND officials are available to appear before the Committee at its convenience once negotiations are complete to outline how the issue of compensation for the flying training that was never received, will ultimately be resolved.

 

 

Recommendation 3:  That the Treasury Board Secretariat establish a timeline to develop and implement guidelines and training for negotiating large service contracts covering multi-year terms and communicate this timeline to the Committee no later than 31 December 2003.

 

The Treasury Board Secretariat shares the view of the Auditor General that the Government should identify best practices (and adopt them where applicable) and should have key tools to strengthen management practices in procurement and contracting.  Treasury Board also believes that these practices need to be communicated effectively and included in the NATO Flying Training in Canada program’s training and learning components.

 

Recognizing the knowledge acquired through the work on the NATO Flying Training in Canada program and other alternative service delivery arrangements, Treasury Board has partnered with DND and (PWGSC), through the Procurement Reform Initiative, to produce the 2002 Procurement Reform Strategic Direction and Best Practices in Complex Procurement report.  This report provides guidance and direction to support government departments and agencies in more complex procurements and business initiatives.

 

The Treasury Board also recognizes, through its work on the Professional Development and Procurement Certification Program, that it is not effective to duplicate the work of the Government's primary training agents such as the Canadian Centre for Management Development, Training and Development Canada and PWGSC – all of whom offer courses that focus on complex project and procurement management, integrated project teams, change management, and risk management.  Additionally, public servants have access to training through professional associations such as the Purchasing Management Association of Canada, the National Institute of Government Purchasing, and the Project Management Institute.

 

Furthermore, the Treasury Board has undertaken a full review of its policies and reporting requirements in order to rationalize and revise them in an integrated and coherent framework supporting modern management.  Indeed, one of the key priorities identified under the modern management framework is the need to manage complex projects and acquisition.

 

 

Recommendation 4:  That the Department of National Defence immediately initiate a lessons learned exercise based on the NATO Flying Training in Canada program and contract, that it not begin negotiations on, or enter into any large, multi-year service contracts until this exercise has been fully completed and steps taken to share the results with Treasury Board Secretariat and Parliament.

 

The Department of National Defence, with assistance from PWGSC staff, has completed a lessons learned exercise based on the NATO Flying Training in Canada program.  Of the 14 lessons learned, the key conclusions are:

 

• Complex, long-term service contracts require change provisions to allow for flexibility;

 

• Complex service contracts require non-performance remedies whereby some form of penalty tied to the cost of services not performed is applied;

 

• A Project Management Office detachment on-site should be established at the earliest appropriate stage;

 

• Complex service contracts require performance incentive mechanisms;

 

• Complex service contracts must have a senior executive level advisory board to provide direction, guidance and advice; and,

 

• Service delivery initiatives should have deliverables defined in the contract and have milestone payment provisions tied to those deliverables.

 

The NATO Flying Training in Canada program’s lessons learned have been formally documented and distributed within DND and they are also publicly available on DND’s Internet site.

 

In addition, DND is applying the NATO Flying Training in Canada program lessons learned to its current large contracts.  For example, in the new Contracted Flying Training and Support (CFTS) project, a performance incentive payment structure has been included and an on-site project management office has been established.  Furthermore, the wide distribution of the NATO Flying Training in Canada program’s lessons learned, as well as the formal communication of the lessons learned from most major service delivery projects within DND, will help ensure that these lessons are applied to future contracting activity.

 

 

Recommendation 5:  That the NATO Flying Training in Canada program be deemed a Major Crown Project.

 

The NATO Flying Training in Canada program is a unique initiative, a strategic alliance with the private sector, managing a complex, international, cost-shared military flying program.  This initiative established a new business partnership to provide military pilot training for Canadian Forces pilots and international air forces through direct Government-to-Government agreements.  The Government manages the program through a well-developed management approach borrowed from the principles found in its project management policies.  The decision to designate a project as a Major Crown Project is based both on risk and cost at the program’s inception.  The NATO Flying Training in Canada program is well into its contract phase.  The project-related risks upon which the designation of a Major Crown Project would be made are now related to contract management not project management.  The Major Crown Projects policy does not extend its surveillance and oversight to contract management.  Overall, changing the status of the program at this late date would not produce any appreciable benefits.  Furthermore, DND intends on improving its performance reporting on the NATO Flying Training in Canada program to help ensure a higher level of scrutiny, in keeping with that applied to Major Crown Projects, is applied to this program.  Improved performance reporting is addressed in greater detail in the response to the Committee’s sixth recommendation.

 

 

Recommendation 6:  That the Department of National Defence, in line with the guidance provided by the Treasury Board Secretariat of Canada, take steps to improve its performance reporting with regard to the NATO Flying Training in Canada program beginning with the Department’s performance report for the period ending 31 March 2003.  Reports must reference the Program’s performance in meeting the needs of the air force for trained pilots.

 

The NATO Flying Training in Canada program must meet the reporting requirements set out in the annual call letters from Treasury Board for the Departmental Performance Report and the Report on Plans and Priorities.  DND will provide more specific details on the program’s performance, including how it is meeting the air force’s training needs, in its Departmental Performance Report for 2002-2003, and will continue to do so in future reports as long as it is required.  This level of performance reporting will be in keeping with the level of performance reporting conducted on Major Crown Projects.