PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 2, 1998

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[English]

The Vice-Chairman (Mr. Andrew Telegdi): Can we have the meeting come to order? This is pursuant to Standing Order 108(3)(e), consideration of chapter 4, National Defence—Buying Major Capital Equipment.

The first person we are going to have give evidence is Mr. Desautels.

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

With me today are Peter Kasurak and David Rattray, respectively principal and assistant Auditor General, responsible for national defence matters.

The department, Mr. Chairman, plans to spend almost $ 6.5 billion over the next five years to purchase equipment that Canada's armed forces need to carry out their assigned tasks.

Our audit examined six major capital projects with a total value of $ 3.3 billion. They were: the Griffon helicopter; the maritime coastal defence vessel; the Coyote armoured reconnaissance vehicle; the Eryx anti-armour weapon; the electronic support training system; and the Leopard tank thermal sight project.

All six projects we examined are likely to meet their contract costs and performance objectives. Nevertheless, we're concerned about several of the management practices we observed.

We found that defence policy allows wide latitude in the level of equipment capability required. We noted in the projects we examined that affordability constraints resulted in the purchase of low-end capability, limited the numbers purchased, or both.

Specific examples of projects that encountered these types of problems are the Griffon helicopter, the maritime coastal defence vessel and the Leopard thermal sight project. For each of these projects, the department selected equipment that does not meet the original military requirement.

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The Griffon helicopter cannot meet the army's original lift and communications requirements. The maritime coastal defence vessel project is acquiring two sets of mechanical minesweeping gear for 12 ships and effective only against some types of mines, and has not acquired some of the equipment necessary to patrol effectively in darkness and poor visibility. The Leopard C1 tank is being fitted only with an improved sight although the army had considered a complete upgrade, including the gun and armour to be the minimal viable option.

[Translation]

Mr. Chairman, we found several ways in which capital acquisition management practices could be improved.

First, the department should place greater reliance on timely studies and analyses rather than relying primarily on professional judgment.

Second, there are opportunities for greater testing of equipment in actual operational roles and conditions before entering into contracts.

Third, risk management could be made more rigorous.

Many of the problems associated with purchase of major capital equipment that we have found both in the present audit and past audits continue to affect today's capital acquisition projects. The department confirmed the persistence of these problems in the recent re-engineering study that examined capital project management from end to end and is addressing them in the many ongoing change initiatives. However, the introduction of new project management processes will require time to introduce new skills, training programs and a continuous program of cultural change to realize full implementation.

I am encouraged by the department's efforts to resolve long-standing problems in the purchase of major capital equipment. In 1994, the department began a major management renewal effort to cope with budget reductions and improve the effectiveness and efficiency of operations. As part of this effort, the department has indicated that it plans to develop an action plan for a new acquisition process by 1999. The department sent us a copy of that plan last week. It has also developed a draft "Acquisition Reform Guide" that captures new acquisition concepts and is being developed into a detailed guide to implementing acquisition best practices.

In general, we found that the reform of the capital acquisition process is still in its early stages and that progress in implementing change has been slow. This is understandable, given the complexity of the issues involved and the long-term nature of the problem. Also, because a major portion of the acquisition function remains outside the department, particularly the contracting function, the Treasury Board Secretariat and Public Works and Government Services Canada also need to become involved in order to make required changes.

[English]

We recommend in the chapter that the Department of National Defence, in consultation with the other key departments and agencies involved in the capital acquisition process, particularly Public Works and Government Services Canada, Industry Canada and Treasury Board Secretariat, develop an implementation plan for reforming the capital equipment acquisition process.

This committee may wish to request that the department develop an implementation plan that clearly identifies the nature of the changes that are required, the targets for performance improvements and the time frame for achieving the improvements.

As I already mentioned, we are concerned about the low use of testing and evaluation, particularly when the department purchases so-called commercial off the shelf or military off the shelf equipment. In order to make sure that equipment can fulfil operational tasks and missions of the Canadian Forces, it is necessary to ensure that adequate tests and evaluations of equipment are carried out prior to purchase and during acquisition to confirm that the right type of equipment is being purchased. This is particularly important when the department intends to use the equipment in ways that have not been tried by commercial users or other military organizations.

The department should review the extent of pre-contract testing it performs and the degree of reliance it places on civilian certification of equipment.

Finally, the department needs to strengthen its requirements and options assessment process, possibly by making it more prominent in its acquisition reform guide. The department should also prepare studies and analyses on a more timely basis so that they can be used to support acquisition decisions.

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Mr. Chairman, this concludes my statement. We would be pleased to answer the committee's questions.

The Vice-Chairman (Mr. Andrew Telegdi): Thank you, Mr. Desautels.

Mr. Judd.

Mr. Jim Judd (Deputy Minister, Department of National Defence): Mr. Chairman, I have with me today the chief of the defence staff, General Maurice Baril; and the assistant deputy minister, materiel, Mr. Pierre Lagueux.

We have no opening statement to make. There are some things with which we disagree in the Auditor General's report. Other things we agree on. We would be happy to discuss those.

The Vice-Chairman (Mr. Andrew Telegdi): Go ahead with your opening statement. Oh, you don't have one.

Mr. Jim Judd: No.

The Vice-Chairman (Mr. Andrew Telegdi): No statement at all. Okay. Then I'll go to Mr. Mayfield.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Mr. Chairman, it's interesting that we should be talking about the processes of acquisition and that the media yesterday would be filled with the Bombardier contract, $ 2.85 billion. I understand that this would cover approximately 80% of that company's annual costs.

Mr. Ivan Grose (Oshawa, Lib.): Mr. Chairman, on a point of order.

The Vice-Chairman (Mr. Andrew Telegdi): Yes.

Mr. Ivan Grose: I would suggest that what we're discussing is what is included in the Auditor General's report and not something that was celebrated in the press yesterday.

Mr. Philip Mayfield: I think this relates directly to acquisitions, which is what we're discussing here.

Mr. Ivan Grose: No, quite frankly, Mr. Chairman, I disagree. We're discussing the report as it is, and not what happened yesterday.

Mr. Philip Mayfield: Mr. Chairman, may I have leave to continue my questioning, please.

The Vice-Chairman (Mr. Andrew Telegdi): We will wait to see if Mr. Mayfield ties in the relevance to chapter 4.

Mr. Philip Mayfield: I have just listened to the Auditor General talk about his concerns on acquisition. I was wanting to ask him if the services which are being purchased from this company would fall in the general realm of his discussion within his report on the purchase of equipment and services. Are you concerned about this?

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Mr. Chairman, on a point of order. This is not relevant to the discussion and what the committee is dealing with today. I think you need to rule appropriately.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield has the floor right now. If he asks a question that the auditor is unable to answer, that's fine, but his time rolls on. Then he's obviously not going to be able to ask questions on the topic in the rest of the session where he is giving up that time. I will let him go and see if he can tie it in. Maybe he can, but we can't really sit here and debate whether or not we like what the member has to say. I expect that he will tie it in, but we shall see.

Mr. Lynn Myers: Mr. Chairman, with all due respect, he's asking the Auditor General to give his opinion with respect to Bombardier. I'm not sure that's why we're here today. In fact, I know it's not. I don't see the relevance of this line of questioning. I don't see the tie in, as you say.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield, is there a place where you are going to tie this into the report?

Mr. Philip Mayfield: I'm attempting to do that. I would like to know how much of my time has been taken up by this intervention. Do I still have eight minutes?

The Vice-Chairman (Mr. Andrew Telegdi): No, you've got six minutes.

Mr. Philip Mayfield: I see the Auditor General in his report being positively critical, I would say, of some of the needs of this department in its practices for procuring equipment. I see here simply an example of what the Auditor General has been discussing in his report. I am asking you, Mr. Desautels, if this contract as it has been announced fits within the type of criticism that you are offering this committee after your examination of the Department of National Defence.

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Mr. Denis Desautels: Mr. Chairman, if I may help the committee, the matter to which the member is referring is not something we have looked at directly within chapter 4. What we looked at in chapter 4 were acquisitions of major capital equipment. The kind of contract we're referring to is a service contract. We haven't looked at that yet, but we plan to do that in our subsequent audits. The size of contract that was referred to is large enough that this is what we would have a look at in due course.

The overall theme of chapter 4 basically is whether in its acquisition processes the department is acquiring the kind of equipment it initially planned to acquire, and whether the end result of the acquisition process is that it's getting the equipment it needed to do its task.

So there's a difference between that and the matter raised by Mr. Mayfield, which in due course we will look at through our audits of service contracts in DND.

Mr. Philip Mayfield: In chapter 4 of the Auditor General's report it has an examination of six recent acquisitions by the department. This should serve as a wake-up call to current practices in equipment acquisition, particularly in the area of the management of this. What worries me in particular is the trend to purchase low-end equipment with less capability than we currently have that does not necessarily fit current platforms.

My question comes as a result of the Auditor General's findings. What are you doing now to resolve some of these issues the Auditor General raises? Do you feel the Auditor General has a valid criticism of the manner in which you operate? If you do, I'd appreciate an elaboration on this. Are you working with your partners, Public Works, industry, the private sector, to ensure that there is improvement in these acquisition practices?

Mr. Jim Judd: Very briefly, sir, I guess our starting point would be that we would disagree with the Auditor General's observations that the equipment in question is low end. We can go through it piece by piece if you like, but we just don't agree with the fundamental premise there.

We are working, as the Auditor General notes in his report, on improving our acquisition and procurement systems. We are working on that internally. We are also working with Canadian industry. I met with representatives last week. And we are working with both Public Works and Treasury Board and other concerned departments and agencies on the overall procurement process for the government where it has a bearing on defence contracting, to make improvements in the system.

Mr. Philip Mayfield: May I ask the Auditor General if he would care to elaborate on the specifics of this criticism in light of the deputy minister's response.

Mr. Peter Kasurak (Principal, Audit Operations Branch, Office of the Auditor General of Canada): Yes, we used the phrase “low end” for a couple of reasons. We found that many of the pieces of equipment were not completely outfitted. Especially the Griffon helicopter and the MCDV vessel were essentially platforms with only some of the mission kit that would be required.

Also we felt they could be typified as low end because they did not meet many of the specifications the military had originally set in developing the projects, items that were most often typified as essential requirements. For instance, the armour and the gun upgrade on the Leopard tank were supposed to be a package that the army at one point called the minimum viable combat capability required. That equipment, when compared to some of the higher technologically developed weapons systems our allies employ, would not come up to that.

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The department told us throughout this audit that it was unfair to assess many pieces of equipment against goals it had set for a mid-intensity conflict. Taken together as a package, we felt that low end was a fair representation. Throughout the audit process this is the first time that the department has said it didn't agree with that typification.

[Translation]

Mr. René Laurin (Joliette, BQ): I'd also like to say a word about the Griffon helicopters. I started talking about that with some witnesses last week.

The Auditor General states that the Griffon helicopter cannot meet the army's original lift and communications requirements. At the last meeting, the answer I got to one of my questions was: "Yes, but the Griffon can still be used. It can still be used even though it can't meet the original lift requirements." I understand that, but why did we accept to purchase a helicopter that did not meet the army's original requirements?

General J.M.G. Baril (Chief of the Defence Staff, Department of National Defence): I think you mean that it did not entirely meet the army's original requirements and not that it does not meet all the requirements. We're talking about a difference in lift requirements of a couple of hundred pounds on the helicopter's belly hook. That means a couple of hundred pounds of fuel which reduces its range. Instead of the 100-kilometre range originally asked for, I think it's 45 kilometres. It's a trade-off we had to make.

As for communications...

Mr. René Laurin: Why?

Gen. J.M.G. Baril: I beg your pardon?

Mr. René Laurin: You say you had to make a trade-off. Why? A trade-off for what else?

Gen. J.M.G. Baril: We had a light gun acquisition project and the lift capacity was linked to the light gun that we were replacing. We were replacing our L5 with another gun and, at that point, we did not know what gun we'd be buying. We felt we should be able to transport 3,200 pounds, I believe. Most light guns we were considering buying at that point could have been lifted. But the gun that won the competition, if you can call it that, is a heavier French gun. At the time, both projects were proceeding.

You also said something about the radios. The Griffon acquisition project was happening at the same time as our acquisition project for our new family of radios. But the two of them were not completed at the same time. The Griffon became operational before our radios. We're starting to get our radios now.

So to shorten the process by two years, we had to install the old radios on a temporary basis for them to be compatible with the army. We couldn't use helicopters we couldn't talk to for two years. So as the new radios come in, the Griffons will be equipped.

Mr. René Laurin: When you draw up your specifications, don't you spell out your specific needs? You're telling me that when you bought the Griffon, you didn't yet know what guns you'd be buying. It seems to me that if you buy an helicopter to lift a gun, you should know at the outset what gun you're going to buy and when it's going to be bought. You give your specs to the manufacturer who should normally meet them. Why does this seem not to have happened?

Gen. J.M.G. Baril: The manufacturer could probably have decreased the weight of the gun, but it would have cost us three times as much. These are decisions that have to be made as the project evolves. As for the limits of the helicopter, yes, there are some. But if we had bought a bigger and more powerful helicopter, maybe we could have bought only 50 instead of 100 and, on top of that, there would have been other limitations.

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Mr. René Laurin: I don't know if this can be compared to real estate. I was the manager of a public organization. When we asked an architect to draw up plans to build a 5 million-dollar school, the plans met our requirements and we knew exactly what was in them. That's when we made our choice.

Why doesn't that seem possible here? You draw up your plans and you buy an helicopter. It's a bit as though you were buying to put in inventory just to say: "We've got an helicopter. When we find out what our needs are, we'll improve the equipment to meet our needs." Is that how it works?

Gen. J.M.G. Baril: No, you have to stick with the helicopter. Let's not forget that the Griffon is a Bell 412 helicopter made in Montreal. It's a totally civilian helicopter with a coat of khaki paint. Instead of going ahead and designing a specialized helicopter like the one we wanted at the time to meet our specific needs, we had to adjust our needs somewhat.

The limitation we always come back to is the 100 km gun lift instead of 145. However, the only or main goal of the helicopter is not to lift guns. It's to help out in times of flooding, medical evacuation and troop transport. These are the helicopters we'd use for our specialized troops, anti-terrorists and so forth. You're addressing the single limitation of the weight that can be lifted with the hook.

Mr. René Laurin: Now let's talk about the C1 Leopard tank. The Auditor General states:

The Leopard C1 tank is being fitted only with an improved sight, although the army had considered a complete upgrade, including the gun and armour, to be the "minimum viable" option.

So you knew what you wanted at the time because you were stating what your "minimum viable" requirements were, but something else was delivered.

Gen. J.M.G. Baril: We're talking about resources to be applied to a tank that is now 22 years old because it was bought in 1976. At that point, the Leopard C1 was the latest in tanks. It was a German tank and it was possible to say, during the last two or three years, that this tank did not meet army requirements anymore and it would be replaced with another. Modern tanks are extremely expensive.

So the option chosen was to improve the fire control system and night vision. It was equipped with light intensifying television which is a technology going back to the late 70s but it was the best at the time. Today, you have thermal imaging sights. That's what we want to do.

With the acquisition of the thermal sights, we'll be able to shoot the same gun, a 105 millimetre-gun, at high speed and high pressure, which can down just about anything moving on the battle field except, maybe, for the American M1A1 Abrams and a few other tanks with very sophisticated armour.

That tank can still fight other tanks at all times, day and night. It is very agile. You're saying that we didn't armour it, but one third of Canadian combat tanks are equipped with explosive reactive armour.

Mr. René Laurin: So does that...

Gen. J.M.G. Baril: So two thirds of the armour was not bought, but it could be bought and installed very quickly on the rest of our tank fleet. We have a squadron that's ready to go into combat with the extra armour.

Mr. René Laurin: General, do you admit that the acceptable minimum that had been determined was changed? What you got was not the minimum anymore. The minimum viable option was changed for you.

Gen. J.M.G. Baril: We wanted to keep that tank for another ten or so years, but it will have to be replaced by a tank or something else. We don't know what it will be called yet, but we're thinking about either an armoured combat tank or an armoured direct fire tank.

The technology in the areas of armour, gunnery and fire control are changing so rapidly that improving the Leopard during these relatively quiet times will be sufficient.

For our present operations in Bosnia we don't even need our tank. We have deployed two anti-mine tanks because they not only have a day-and-night combat capability but all the instruments we need to cross mine fields: the plough and the anti-mine rollers. But we've withdrawn the tanks we had in Bosnia.

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We don't need the combat tank in the peace enforcement operation under Chapter 7 at this time.

This is not second-class equipment. This tank is very agile and will serve us for some ten or more years before a decision can be made for the acquisition of a replacement tank which will be a very modern tool. We don't yet know exactly what it will be.

[English]

Mr. Lynn Myers: Mr. Chairman, I wanted to pursue the line of questioning with respect to low defence capability. We spoke about the Griffon helicopter and the Leopard tank.

I wondered if you could comment, General, on the maritime coastal defence vessel. The Auditor General pointed out that he too thought that had low defence capability. What is your response to that?

Gen. J.M.G. Baril: I'm just a fisherman with a 16-foot aluminium boat. I don't know too much about those ships, even though I have seen them. I've been on them. I've sailed on them. I know a little about those vehicles.

It has two purposes, I think. I'll go to my experts who are involved in the acquisition process. It was acquired for our naval reserves, to train the reserves and develop them for mobilization and employment in the higher capability of the navy. It is also for coastal defence, mapping and anti-mine.

I think we have an excellent ship, coastal water machine, that has capability on board now and also has the capability to improve what they have on it. Three of them are fully equipped to do mine-sweeping. The others are ready to take some more expensive instruments that can go on it; mine-clearing can be bought and operated on them.

There is some night vision capability that was not on board, but other means have been given to them so that they can operate day and night, in fog and rain. Not all of them have all the capabilities. As we progress, I hope we have the resources to put them on.

They are excellent training vehicles, excellent vehicles to use on our coastal water, with the fishery department.

Mr. Lynn Myers: That is very useful. Thank you very much.

I wonder, Mr. Judd, if you could comment on the Auditor General's indicating that of the six projects that were examined, only one was considered to have had adequate risk management process.

Mr. Jim Judd: I will ask Mr. Lagueux to respond to that. He's the person most directly responsible for the procurement program. I think he will give you better value for your money on the answer.

Mr. Pierre Lagueux (Assistant Deputy Minister, Materiel, Department of National Defence): Mr. Chairman, the issue of risk management in all capital projects is one we take very seriously. Indeed one could say that project management in and of itself is risk management. We go to great pains to ensure we have adequate project management staff, well-trained project management staff to look after the project.

Various projects have different risk levels and risks associated with them. If buying a commercial, off-the-shelf, proven type of vehicle, then the risk associated with that is quite different from a project that is developmental and non-existent and research and development is being done to develop a new system.

The Americans, for example, will develop brand-new systems from scratch. They develop new tanks, new airplanes, and so on. We are not in that type of game. We buy mostly proven equipment. By and large, we need to ensure that our risk management is fixed on the amount of risk one would have in the various projects.

The Auditor General pointed out that we don't have adequate risk management. I think one has to put that in context with what I said, that there are different risks associated with different levels of projects, different levels of equipment.

On the projects the Auditor General looked at, many of them had their origins back several years ago. We are looking at many projects coming to completion now, the Coyote, the MCDV, the Griffon and so on.

Since the early 1990s we have taken a number of steps to address better management of risk in projects. We put together in 1993 a standard for the preparation of the statement of work, so the contractor will have a formalized risk management plan and risk management program as part of all bid proposals.

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More formal direction for the preparation of project implementation plans were promulgated in 1994. Since 1995 all projects over $ 30 million have to submit a project profile risk analysis.

In 1996 the project management training we give to our own people internally was completely revamped. As part of that a new course dealing specifically with project management and risk management has been added within the department to train our own people. I think we have moved a long way since the early days of some of these projects.

I would stress that project management or risk management of course will depend on the inherent risk in the project. To look at all projects equally and apply the same risk management approach to all projects I think would not be cost beneficial.

For example, if looking at a total system responsibility with a contractor, he's responsible to deliver the total project to you. Then the amount of risk management that you would put in place as opposed to a developmental project would be different. I don't think it would be cost effective to duplicate the risk management of what the contractor is doing but oversee his processes as opposed to doing it ourselves. I hope that answers your question.

Mr. Lynn Myers: That's very thorough. Thank you very much.

The Auditor General indicated that there was some lack of operational testing early on to identify problems. I wonder if you could address that concern in terms of is that an issue, is it something you are concerned about, and if so, what are you doing about it?

Mr. Pierre Lagueux: Again, I think operational testing has to do with the management of the risk in a project. The amount of testing we would do would vary depending on the type of equipment we are buying and the risks associated with it.

In the projects that form part of this particular audit, for example the MCDV was a case in point where we did have time scheduled between delivery of the first and second ships to do some operational test on the ship. Unfortunately, there were contractor problems, and at that time the shipyard changed hands. There was a delay in the delivery of the first ship and then they went into producing the second ship immediately, so we didn't have that time that we had built into the program.

However, I don't think it would have made a lot of sense to tell a contractor to wait to start building the second ship, because in effect these were the only ships he had in his yard. We would have had to pay for that delay in overhead he had to incur.

Again, if buying standard commercial or commercial off-the-shelf or non-developmental type equipment, the amount of operational testing we have to do compared to a different type of equipment will wary. On the Coyote vehicle, for example, we did extensive tests and trials earlier on in the project from about mid-fall to the January-February timeframe. We did an extensive series of tests and trials on vehicles at Suffield, and what we ensure is that within the contracts there are warranty clauses and so on. In the case of the Coyote there were several things that needed to be rectified. These were all done by the contractor, under warranty, at no cost to the crown. So we tend to mitigate the risk that way.

Again, where we have relatively small numbers of equipment that we buy it is very difficult to say to a contractor give us one or two, we will run a bunch of tests and in the meantime sit there and wait, and when we are happy we will have him do the rest of the production run. In the meantime, when he waits, he has an overhead facility, he has people waiting and so on. They cannot just sit there and wait while we do our testing.

It is different from the Americans. They build prototypes, do a lot of testing, do a lot of changes and then go into production. As I said, we tend to buy mostly proven products off the shelf as opposed to developmental.

Mr. Gurmant Grewal (Surrey Central, Ref.): I also have some concerns about the risk assessment and management of major projects. I think this issue has been partially addressed, so I don't want to go into details because of the limited time. I also have equal concern about the operational testing which is not done in major capital projects before the purchase. What is the use of doing it after the purchase? I'm not clear as to what specific measures have been undertaken so that the testing will be done before the major capital projects are started. Are there any specific measures? You can list one, two, three, four, so that we are assured that this is done.

Mr. Pierre Lagueux: As I said earlier, the amount of operational testing we do will vary on the nature of the equipment. All the equipment that we buy does go through operational testing. As I said, the Coyote vehicle went through four or five months of operational testing. The MCDV, the maritime coastal defence vessel, went through operational testing. So we always do some operational testing.

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Mr. Gurmant Grewal: If it was done, then why do we have these four, five, six examples which show that the operational testing was not done, actually? If it was done, then it was improper.

Mr. Pierre Lagueux: I don't think that's what the Auditor General said, sir. I think he would have had us to the operational testing earlier than we did it. We did the operational testing. Under warranty, the problems that were found have been corrected in large measure. I think the Auditor General would have us do the operational testing earlier on.

As I said in answer to the previous question, I think that in many cases we are buying proven products off the shelf as opposed to developmental products. We have prototypes, as we can do testing earlier on them before we go into actual production. It's a little more difficult for us to do that kind of testing that is done in the United States, for example, on prototype models before going into production.

So we do the testing and in certain cases like the MCDV we had planned for a time between the first and second vessel. Unfortunately there were contractor difficulties. There was a change of ownership, which did not allow us the time we had hoped for in the contract to do the testing. So we were caught out. In that situation we did the testing a little later than we had hoped for.

Mr. Gurmant Grewal: Do you mean to tell me that the testing was done and you were satisfied with that, or do you contradict the Auditor General's findings? That's what I get.

Mr. Pierre Lagueux: I'm not contradicting the Auditor General. I'm putting his comments in context in the sense that he would have us do testing much earlier. I agree that if we could do that, it would be a good thing.

Unfortunately, in many cases we can't do that, so we still do the testing. We do have other mitigating clauses in the contract such as warranty that will ensure that anything we find that has to be corrected is done so by the contractor, not at taxpayer expense.

Mr. Gurmant Grewal: I would like to hear the Auditor General's comments, but let me go to another question, then probably both can be addressed.

Another issue is the lack of documentation in certain major projects. Does it reflect poor quality of management information systems? If you agree, what's being done to rectify it so that for all major capital projects there is some assurance given that at least the documentation is complete?

Mr. Pierre Lagueux: The issue of documentation, as I recall, centred around one project, the Eryx project, in which there were some studies referred to by the Auditor General that were cited in some of the documentation that was not available for the Auditor General to look at.

One specific case had to do with a study done by the defence research establishment in Valcartier, a report of 1984, which we were not able to present to the Auditor General. In fact, our research seems to indicate that it was a draft report that was referenced in documentation. When the final report came out in 1987 the draft report was replaced by the final report.

So it's not a question of documentation that is missing; it is a question of documentation that was updated and replaced. So we couldn't provide the draft to him.

Mr. Gurmant Grewal: You mentioned—

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Grewal, just let him finish answering. You are 40 seconds over, so you will have to wait until the next round.

Mr. Gurmant Grewal: He did not answer my question, actually. He mentioned only one project. There are several projects.

The Vice-Chairman (Mr. Andrew Telegdi): You will have to get it next round, because now it's 47 seconds over.

The next one we have is from Mr. Harb.

Mr. Mac Harb (Ottawa Centre, Lib.): Mine is actually fairly simple. I want to address the issue that relates to the whole process of acquisition within the Department of National Defence now.

The Department of Public Works and Government Services does purchasing for the Government of Canada for all its equipment. National Defence in the past had done its own acquisition, for good reasons. There are certain things where the department has gone on its own and done its own thing.

I guess I want to find out from both of you, Mr. Judd and Mr. Baril, whether there is any sort of a plan with specific dates in terms of when we can have some sort of cohesive strategy.

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Whenever you want to have some sort of a product that Public Works will be involved in, in terms of the tendering process, follow-up and all of that, when would that take place, if there is anything in the works? If there is nothing in the works, are you planning to set up something so we can get on with this?

Frankly, I think you have enough on your hands as it is trying to defend the nation both here as well as abroad. This is something I would think, probably in the longer run, would be best served if it were to be done collectively or managed between you and Public Works. Public Works could do the purchasing and you could do the monitoring. You could tell them, “This is what we want from you”.

Maybe you could give us an idea of, if there is anything, when it would be implemented.

Mr. Jim Judd: I have a couple of comments on that.

First of all, the process is not quite as straightforward as you may have thought. There are a few other folks involved, including Treasury Board.

Mr. Mac Harb: That's right, yes.

Mr. Jim Judd: The players in the process have their own roles at various parts in the process. It is a complex process. It is for many people in the private sector a frustrating process and quite a lengthy process.

We have been working with our colleagues in other government departments and agencies to see if we can streamline the process to cut down the amount of time that is devoted to a particular acquisition without, at the same time, losing anything in the way of risk management, testing, due diligence, transparency, fairness, equity and all of those other considerations.

Mr. Lagueux, from our organization, has taken the lead on this with other government departments. Recently he was involved in a major discussion with them on these issues. I think that meeting took place last Friday. Our hope is that within the course of the next 12 months we can collegially and collectively produce a better system for acquisitions and procurement.

Mr. Mac Harb: Thank you very much.

The Vice-Chairman (Mr. Andrew Telegdi): Next we have Mr. Grose.

Mr. Ivan Grose: Thank you, Mr. Chairman.

Quite frankly, I am getting a little tired of sitting here listening to all the equivocation.

Let's start with the helicopter. The armed forces said they wanted a helicopter with specific specifications. You wanted it to lift a gun, but you weren't sure which gun it was going to be or how much it was going to weigh. Eventually you got the gun. Then you got the helicopter. And I am fascinated by the fact that someone admitted here today exactly what I said at the last meeting. It was a civilian helicopter which you painted brown and it wouldn't lift the gun far enough.

General, I am afraid I quarrel with your lift capability. Apparently the helicopter can only lift the gun that we have, whatever gun it is, for 25 kilometres, and the gun could probably shoot that far.

This is an example of the military asking for something and what they get is a compromise. That is not the way to do business.

I ran a business for many years. I bought a cheaper truck, but it broke down long before it should have and eventually I bought the more expensive truck, which lasted as long as it should have.

This is not the way to do business. The coastal defence vessels you say are great for training. Terrific. If were was declared tomorrow, we have a lot of trained sailors, but the boat will not do the job.

This is not the way to do business. The military at one point should tell us what they want, what they absolutely need to do the job which we supposedly have defined for them. Tell us what equipment you need and we will either provide the equipment or we, my colleagues opposite as well as the government, will take the responsibility and not do what the military asks.

• 1620

I have asked this before, and I ask it again. Are you able to tell us what they absolutely need? There should be no excuses. Because when they get the equipment, if they don't get what they want, then it is our fault.

Please answer that question.

Mr. Jim Judd: I will try to do my best, sir.

Let me use the helicopter as an example. We acquired 100 copies of this helicopter to replace three different helicopters which had previously existed to do three different kinds of jobs. Going from three helicopters to one helicopter made a lot of sense, as I think you would agree, in terms of operations and maintenance overhead.

Mr. Ivan Grose: Agreed. But does it do the three jobs?

Mr. Jim Judd: Let me get to that.

As the chief of defence staff said earlier, the helicopter is intended to do a variety of jobs. Among other things it had been intended to do certain things with respect to a light cannon that was to be acquired at the same time. Given what was available on the market at the time, the expectation was that the performance requirement for the helicopter would have covered off almost any gun then on the market. As it transpired, the gun that won the competition turned out to be somewhat heavier.

That is not to say, however, that the helicopter cannot lift the gun, cannot lift it as far as had been originally hoped. That is also not to say that the helicopter cannot do a myriad of other tasks which the previous fleet had been asked to do, whether it was transporting anti-terrorist forces, transporting troops, equipment or materiel. We have used it quite successfully inside and outside of the country on a number of operations, including the ice storm and operations in Haiti. We continue to use it and I think it will prove to be a versatile piece of equipment.

Does it do all the things that one would want it to do? I guess the answer would be no, but the alternative for us would have been, presumably, one of several things.

First and foremost would have been to get a fleet of different helicopters for different things: a reconnaissance helicopter, a heavy lift helicopter, a light lift helicopter and maybe attack gun ships. But that in and of itself would have vastly increased the amount of money required, both—

Mr. Ivan Grose: Mr. Chairman, if I may interrupt, that is exactly the answer I wanted.

It would have increased the cost. That is a decision of government, not a decision of the department or the military. You have compromised. This is what I am asking you to tell me. Do you equivocate and compromise and take equipment that does not do the job when you should be saying to us, “This won't do the job. We need more more money.”?

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Grose, now we have really run over.

Mr. Ivan Grose: Thank you. My question was answered very fully anyway.

The Vice-Chairman (Mr. Andrew Telegdi): Mrs. Barnes.

Mrs. Sue Barnes (London West, Lib.): Thank you, Mr. Chairman. Before I start I want a point of clarification from the clerk. I would appreciate it if you would ask all of our witnesses to provide opening statements which the committee members can receive ahead of time so we can properly prepare. We don't get people here very often and that would be useful.

The Vice-Chairman (Mr. Andrew Telegdi): All right.

Mrs. Sue Barnes: Thank you.

First of all, General, thank you for being here. For my part, as well as my constituents, I want to see safe equipment for the men and the women who service very well this country. It is a priority.

We spend about $ 1 billion plus a year on equipment. I heard some answers today that I wouldn't be able to justify if I was in private business.

The answer that says “Well, we spend money on one ship and go ahead with building the second ship before we finish testing because there are warehouse costs”, quite frankly, I cannot believe that answer. I would not be able to justify it in my own home, purchasing an item as an individual person.

• 1625

The Auditor General's report tells us that 50% of the projects audited had inadequate or insufficient operational testing. These were fairly large dollar ticket items, all of them. You have said that on some of them the warranties covered the cost.

What I would like to know is, on the three projects that the Auditor General has identified as having insufficient operational testing, what was the cost of retrofitting based on the deficiencies found after the fact? Was all of it covered by warranty?

Mr. Pierre Lagueux: Perhaps I can clarify what was said. I won't take up too much of your time. Perhaps I wasn't clear.

Mrs. Sue Barnes: Don't worry about my time.

Mr. Pierre Lagueux: All right. Thank you.

I did not mean to imply that warehouse costs were the reason we didn't do the testing between the first and the second ship. What I tried to explain was that between the first and the second ship, if it was going to take several months to test the first ship until they could start production of the second ship, one would have to carry the costs of the shipyard during that whole period of time, when actually they would be idle and not doing the other ship. It is the total cost of the shipyard during that period of time. I am sorry if I misled you in answering that question.

Unfortunately I don't have a specific answer in terms of the costs of the various projects and the items that were retrofitted, but the costs were—

Mrs. Sue Barnes: You can table them.

Mr. Pierre Lagueux: —covered under warranty. Therefore, the retrofits were part of the contractor's responsibility.

In the case of the Coyote, for example, those costs were borne by the main contractor at the diesel division of General Motors. We got what we paid for; what we contracted for.

Mrs. Sue Barnes: As a member from London I know that the diesel division of General Motors provided you an excellent project. I am glad we are getting better tanks for our men and women. I was very supportive of that.

Auditor General, could you comment on how you feel about the statement about ordering one ship before the other one is finished?

Mr. Peter Kasurak: Yes. I would agree with the department's statements regarding the MCDVs.

We used this example to show what happens when there is a gap in testing. Our report pointed out that this was covered by warranty and that in this particular case there weren't a lot of viable alternatives for the department. However, there are a couple of caveats.

First, one has to remember that not every defect or limitation that is discovered will be covered by warranty. It is only covered by warranty if it is in the original specifications. If there is a gap because there has not been adequate upfront testing, then you may have a problem.

At the time of our audit they did not yet know what the technical solutions were for some of the problems that had been identified with the Griffon helicopter. You may find that there is another danger there, if you like. You cannot simply rely on the warranty. It may not be covered and you may get yourself into a situation where there is no engineering solution.

That is why we feel that, overall, strengthening this would be an improvement.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Pagtakhan...?

Mr. Rey D. Pagtakhan (Winnipeg North—St. Paul, Lib.): Thank you, Mr. Chairman.

First, I would like the department and the general to clarify the difference between original requirement and minimum requirement. Are they different or are they the same?

Gen. J.M.G. Baril: The minimum requirement is the requirement of the piece of equipment that is required to do the job as specified. Original requirements might have been based on studies, they might have been based on the Cold War or they might have been based on other kinds of points of view at the time. But we always buy the minimum requirement.

Mr. Rey Pagtakhan: If the minimum requirements are not met, when you do your auditing, is there a level below which quality is compromised?

• 1630

Mr. Peter Kasurak: It was our concern that when items that had been identified originally as essential were not in the final statement of requirements or specifications that there was a risk to value for money. In other words, essential costs meant you had to have it. It was not highly desirable, it was not nice to have, it was essential.

In addition, we found that the combat studies that we were able to collect tended to, if anything, dramatically enforce that these were minimum essential requirements to begin with.

We feel that there was a real risk in going lower than what the services had originally specified.

Mr. Rey Pagtakhan: In the light of that, Mr. Judd, if you had a budget to buy the equipment with the original minimum requirements, would you agree that when you settled for less than the minimum requirements, the originally set requirements were therefore in excess of the original needs of the department?

Mr. Jim Judd: I think as the chief said, original requirements may not equate to minimum requirements because they are at two different points in quite a lengthy process in which external circumstances, requirements, threats, needs, etc., can all change.

Mr. Rey Pagtakhan: As a consequence of the market forces, the budget factor and many variable factors, you were satisfied that in accepting equipment below the minimum requirement it would still be safe for the military and would still be useful. Is that right?

I think the question can be answered with a yes or a no.

Mr. Jim Judd: As the Auditor General's report says, the acquisitions in question met all the performance requirements.

Mr. Rey Pagtakhan: In his presentation the Auditor General spoke about the so-called acquisition reform to be finished by 1999. How close are you to completion?

Mr. Jim Judd: Pierre, could you deal with this?

Mr. Pierre Lagueux: Thank you.

As the Auditor General noted, we are working on acquisition reform within the Department of National Defence. As Mr. Judd pointed out earlier, I had the occasion last week to meet with officials from Treasury Board, from Public Works and Government Services Canada and from Industry Canada to bring the whole government team together to look at the process of acquisition reform.

As was mentioned earlier, defence is one big player within acquisition in government, but not the only player. The Department of Public Works and Government Services Canada, in fact, does all the contracting. Industry Canada looks after industrial and regional benefits and so on. We work very much as a team.

We already work very much as a team with those departments. In all our large projects, for example, Public Works and Government Services Canada participates directly as part of our team. It looks after the contracting side. So we already work very closely with them.

As I say, we are now trying to bring all the various different initiatives with respect to acquisition reform under one steering committee which will consist of Treasury Board, Public Works and Government Services Canada, Industry Canada, the Department of National Defence and other interested departments.

Specifically with respect to our defence acquisition reform, we have recently finished the first draft of the acquisition reform plan. As a matter of fact, we made a copy of it available to the Auditor General last week. That is the first draft of our planned approach to acquisition reform which will lead us to the timetable that you mentioned.

Mr. Rey Pagtakhan: Do you hope to see it completed in early 1999?

Mr. Pierre Lagueux: I would expect that our timeline takes us toward the end of 1999.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield...?

Mr. Philip Mayfield: Thank you very much, Mr. Chairman.

[Translation]

Mr. René Laurin: Mr. Chairman, on a point of order. With respect, I believe the Reform Party has already been to bat twice. Now a third member is showing up who isn't here usually. If they add a fourth one, will they be allowed four interventions before we get our second one?

Mr. Mac Harb: No. I think it's Mr. Odina Desrochers' turn.

• 1635

Mr. Odina Desrochers (Lotbinière, BQ): I'm giving up my turn to Mr. Laurin.

Mr. Mac Harb: You can't do that. If you use your turn...

Mr. René Laurin: Mr. Chairman, you're chairing these debates, not Mr. Harb. If we're allowed to share out time,—

[English]

The Vice-Chairman (Mr. Andrew Telegdi): That is a good point, Mr. Laurin.

[Translation]

Mr. René Laurin: I could use three minutes 59 seconds and my colleague could take up the remaining seconds. It has been done in the past.

[English]

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Laurin, you will be next, so you are not going to have to wait a long time.

Mr. Mayfield is going to be short and sweet and we will get to you next.

Mr. Philip Mayfield: Mr. Chairman, point 416 states that a previous audit showed the need to improve the capital equipment acquisition process and it seems to me that this highlights the slow rate with which the department has implemented the suggestions for improvement.

Now $ 1.3 million of the Bombardier contract calls for acquisitions, despite this being a service contract. Given this, how does the Auditor General feel about the process of sole sourcing the Bombardier contract without even publishing an advance contract award notice as Treasury Board guidelines state? How does the Auditor General feel about this?

Mr. Lynn Myers: Point of order—

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield—

Mr. Philip Mayfield: Mr. Chairman, it is not my intention to have the Liberals tell me how I can ask my questions. If the Auditor General does not want to answer the question, he will say so, but that is my question to him.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield, in fairness—

Mr. Philip Mayfield: No, no, no. That is my question.

Mr. Mac Harb: Mr. Chairman, out of respect for the witnesses, they took time from their busy schedules to come here to answer—

Mr. Philip Mayfield: We are talking about the policy and the process of acquisitions.

Mr. Mac Harb: Mr. Chairman, we are dealing with chapter 4, so all of the questions have to be relevant to chapter 4. They have to come out of chapter 4.

If you don't want to respect us, that is fair game. But out of respect for the witnesses who are before us, the Auditor General and all of the staff who are here, let's focus first on those points. If you don't have any more questions concerning chapter 4, then let our other colleagues ask questions which are relevant to chapter 4 and we will decide at the end, as a committee, whether or not we want to address the question of Bombardier.

Mr. Philip Mayfield: Whose time are we working on, Mr. Chairman?

The Vice-Chairman (Mr. Andrew Telegdi): I have stopped the clock, Mr. Mayfield. But I think I can understand your frustration. You probably want to be on the defence committee, because you can ask relevant questions at a certain point in time.

Mr. Philip Mayfield: What I want to do is—

The Vice-Chairman (Mr. Andrew Telegdi): Just let me finish. We asked the Auditor General about it beforehand and he said that he is going to be looking at it in the future, given the size of the acquisition.

I don't think it is fair to put that question to the Auditor General, as he has come to this meeting prepared to answer questions on chapter 4 of the report. We have already given him the chance to have input on it and he very clearly said that he will be looking at it at a future date.

I really wish that you would address chapter 4, because that is ultimately what we—

Mr. Philip Mayfield: I believe, sir, that I am. With respect, I believe that I am. We are talking about the policy and the process of acquisitions and I am asking the Auditor General for his opinion on sole source contract awards. It is a method that the department is using and this is not the first instance.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield, I rule that we start the clock and I would ask you to focus on chapter 4. We have already touched upon this and the Auditor General said that he would be looking at it at a future date.

We must appreciate that the Auditor General comes to these meetings prepared to speak to his reports. He already has indicated that at a future date he will be talking about this. Unfortunately that is the nature of the public accounts committee. We talk about things that happened in the past.

Please confine yourself to chapter 4. It is not a question of censorship or anything else by anybody at this committee. As you know, the chair of the committee is a member of the Reform Party.

I would ask you to please use your next two minutes and 48 seconds and then Mr. Laurin can have the floor because he has been waiting patiently.

Mr. Philip Mayfield: I will begin again with point 416, which states that previous audits showed the need to improve the capital equipment acquisition process.

• 1640

I would like to ask the Auditor General, in this process, how he feels about the department using sole-source contracting without advanced publication.

Mr. Denis Desautels: Mr. Chairman, as you know, this is not really the subject of the chapter we are talking about today, in that we are looking—

Mr. Lynn Myers: Mr. Chairman, I rise a point of order, and a point of order demands that you listen to it.

The Vice-Chairman (Mr. Andrew Telegdi): I think the Auditor General was clarifying his position and he was going to put it back to Mr. Mayfield again. It is going on his time, so I would really appreciate it if you would let the AG state it for the record so he can't complain about the chair being biased. I would really appreciate that.

Mrs. Sue Barnes: Mr. Chairman, on a point of clarification, all the parties around this table sit in a steering committee to choose the chapters we will work on, and that is what we prepare ourselves for. We are now discussing chapter 4. It is unfair, in my opinion, to expect witnesses to give opinions on things that are not in that chapter. I will raise a point of order and ask the chair to rule again, because this has been spelled out enough for Mr. Mayfield. His question is out of order.

Mr. Philip Mayfield: Is this not a practice of the Department of National Defence in making acquisitions?

Mrs. Sue Barnes: The question is out of order.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield, the Auditor General began by saying that this was not the topic of his discussion.

Mr. Gurmant Grewal: Mr. Chairman, I rise on a point of order. It is not up to individual members of the committee to say which question is out of order and which question is not out of order.

Mrs. Sue Barnes: No, it's up to the chair.

Mr. Gurmant Grewal: You are in the chair and we respect the chair. The chair should be given the opportunity to decide whether the question is out of order.

If you let the Auditor General respond to this question, I think that would be fair.

The Vice-Chairman (Mr. Andrew Telegdi): But the Auditor General indicated that he did not want to respond.

Mr. Gurmant Grewal: Maybe he wanted to continue. We interrupted him. We didn't let him finish, Mr. Chairman.

The Vice-Chairman (Mr. Andrew Telegdi): All right.

Mr. Denis Desautels: Mr. Chairman, I could just make a general comment if you wish—

Mr. Philip Mayfield: That's what I was asking for.

Mr. Denis Desautels: —about acquisitions generally and how we see them.

I was asked how I feel about sole-sourcing in DND. Sole-sourcing, in our view, is something that is not forbidden, but it raises certain flags. Each case has to be looked at on its own merits, and that is what we do when we review acquisition contracts. Whatever contract you're referring to, we will look at each contract on its own merits and determine whether the process that was followed was the proper process that was called for.

It simply raises flags, but we assess each case on its own merits.

The Vice-Chairman (Mr. Andrew Telegdi): Thank you very much.

Now we will proceed with Mr. Laurin.

[Translation]

Mr. René Laurin: I don't get the impression the Auditor General was not ready to answer questions. I actually think some didn't want certain answers to be heard.

When changes are made to the equipment acquired by the army, is it generally to have it meet whatever the original requirements might have been or is it to meet new requirements that were unknown when the equipment was acquired? Is my question clear?

Gen. J.M.G. Baril: Yes, it is very clear. I think it is both. The situation on the battlefield and what is needed to fulfill the tasks is changing, especially in electronics and aeronautics. So all armament systems have to be modified. Unfortunately, guarantees have to correct integrated systems. Maybe you'd want to add something.

Mr. Pierre Lagueux: Mr. Laurin, the general did say that in the Armed Forces we keep our equipment for many years and that it has to be updated to meet changing battlefield conditions. So we have modernization programs to keep the equipment in a proper state of repair.

When we buy equipment from a manufacturer, we make sure that the equipment we get is exactly in line with what is spelled out in the contract. The clauses state very clearly that the supplier must deliver the equipment we specified.

• 1645

Mr. René Laurin: I'm sorry. I really don't understand. In his report, the Auditor General took pains telling us that the equipment delivered did not meet the initial requirements as expressed by yourself and you're now telling me that the equipment always meets the requirements of the contract. Something is wrong somewhere.

Mr. Pierre Lagueux: What the Auditor General said, Mr. Laurin, is that in all projects the department, the Armed Forces, makes a statement of needs. Often, those statements of needs are written up many years before the contract is signed with the supplier. Many things can change between times. The statement of needs is one thing and the contract is another. The Auditor General did emphasize that in the case of the six projects he audited the supplier will deliver the equipment specified in the contract.

Mr. René Laurin: Agreed. What is the most costly for the army today? Is it the changes brought to the equipment to make it meet the initial requirements, or the changes made to meet future requirements? Which is the most expensive at this time?

Mr. Pierre Lagueux: It's rather difficult to answer that question. The majors costs, these days, are the ones we have for modernizing equipment like the F-18s or the tanks we bought years ago. They have to be brought up to date to keep them at the cutting edge of technology so they'll remain useful on the battlefield or to meet needs that change over the years to meet Armed Forces requirements. That's really where you find the major cost for equipment.

Mr. René Laurin: I'll make a comment you might not want to add anything to because it's a bit political in nature. According to what you've been telling us, I get the impression we're trying to buy ourselves an army we just can't afford.

We have equipment for rescue and humanitarian operations, but when you look at the modern equipment we need to hold our own in a modern conflict, we're stuck with old equipment. We can't develop our equipment ourselves. We get equipment that's already there and that everybody uses. So there is no surprise effect for the army.

I don't know if it's desirable, but I get the impression that, at this point, we really don't have the army we should have to be on the same stage as modern armed forces. That's the impression I get from the Auditor General's remarks and from what you've been telling me during our last two meetings.

Gen. J.M.G. Baril: Thank you for your opinion. I don't see the Canadian Forces the same way you do. We're certainly able to face floods, forest fires and ice storms, but that is not my primary mission.

My primary mission is to defend Canada, defend North America with the Americans, our friends down south, and also to ensure international security. That is my primary mission. It's not getting involved during ice storms in the Montreal or Ottawa regions.

That's why we have the equipment we have. We're a force that can fight, a multi-task force. You're saying that we don't have the equipment we need to deal with modern conflicts. Just the same, we have F-18s which are still the best flying platform and they're equipped with high precision ammunition. We have the reconnaissance vehicle that's practically the best on the market today, and that is manufactured and assembled in Canada. Our frigates would be the pride of just about any fleet in the world. We probably have the best-trained soldiers of any army. We're going to have a new communications system and a new troop transport vehicle that's built where our Coyotes are built.

We can hold our own in the tasks we are assigned. We have met all the tasks assigned by the government of Canada and we're ready for all the tasks spelled out in the White Paper on Defence.

[English]

Mr. Leon E. Benoit (Lakeland, Ref.): Good afternoon, gentlemen.

I'm going to ask some questions here just with the purpose of getting an understanding of how contracting works so that I can apply it to what we're dealing with here in chapter 4.

• 1650

My first question is for Mr. Lagueux regarding the Bombardier contract.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, we dealt with the Bombardier issue extensively and it was ruled that what we are dealing with is chapter 4. The AG has indicated that he will report to us on that issue, but this is a look back, not a look ahead or even looking at today.

Mr. Leon Benoit: What I'm trying to do by asking these questions is get an understanding of the process.

I have been on five committees, Mr. Chairman, and I have never seen a committee that censors questions the way I have seen here today.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, we went at length on this issue. The determination is from the chair. I gave a fair amount of leeway and got everybody excited, including on this side. The determination of the chair is that we will not face those questions. The AG had a chance to respond to it already, and indications are that he will address the issue in the future.

Mr. Leon Benoit: But, Mr. Chairman—

The Vice-Chairman (Mr. Andrew Telegdi): I'm just saying to you that we will stay off the Bombardier question at this point.

Mr. Gurmant Grewal: Just for clarification, Mr. Chairman, is it inappropriate to ask about any particular company? We have to see what issue we are talking about. It could be in reference to any number of companies or anything. It's not necessary that the company has to be listed in this book. Maybe this question is different from the previous question that was asked about that company. If it is related to the process we are talking in chapter 4, I think we should focus on the issue, not on the company, not on partisan politics. Let's focus on the issue.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Grewal, stop your point of order there. I don't think it's an issue of partisan politics. The issue is that we are dealing with chapter 4.

Mr. Gurmant Grewal: Maybe this question is related to chapter 4.

The Vice-Chairman (Mr. Andrew Telegdi): No. We have been through this on numerous occasions, and quite frankly it takes away from the information we can get from both the Auditor General and the witnesses in front of us. Let's try to utilize our time. I see there are a lot of people wanting to speak on chapter 4. Let's keep to chapter 4.

Was there a point of order over here?

Mrs. Sue Barnes: No, I was just going to say that you had already ruled and I wanted to find out if the Reform Party was against your ruling.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, if you have a question to chapter 4 we would like to entertain it. You have three minutes left.

Mr. Philip Mayfield: I note that you don't like the word “Bombardier” used, but I don't see the words “General Motors” used in it, which were used by the parliamentary secretary.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Mayfield, we give you ample time to make it relevant, and the fact of the matter is you have not done that and it didn't relate to chapter 4.

Mr. Benoit, you have three minutes and twelve seconds to ask something related to chapter 4.

Mr. Leon Benoit: Mr. Chairman, my question was related to chapter 4. I was asking about process and I was using Bombardier as the example I want to deal with—

Mr. Ivan Grose: Mr. Chairman, this is completely out of control. I move a motion for adjournment.

The Vice-Chairman (Mr. Andrew Telegdi): All those in favour so indicate. It's not debatable.

Mr. Mac Harb: I thank our witnesses for coming today.

Mr. Philip Mayfield: I'd like a recorded vote.

(Motion negatived: yeas, 0; nays, 10)

The Vice-Chairman (Mr. Andrew Telegdi): We will proceed.

• 1655

Mr. Rey Pagtakhan: I think passions are getting hot. I think when passions get hot in a proceeding, we have to stick to the procedure. I remind members, all of us, when the chair makes a ruling, whether we agree or not, we have to abide by it. The process is there. If we disagree with it, let us challenge the ruling of the chair. Then we will have a definitive decision, one way or the other.

Thank you, Mr. Chairman.

Mr. Leon Benoit: I would like a clarification, Mr. Chairman, on exactly what your ruling was. Are you preventing me from using an example that I want to work through to understand a process? Is it only the example of Bombardier that I'm not allowed to use? Are there other examples that I'm not allowed to use to work through to gain an understanding of the process?

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, as I mentioned before, we have to relate the issue to chapter 4, which has been reported to us by the Auditor General.

Mr. Leon Benoit: Mr. Chairman, I was doing that by using the Bombardier case, which is a case I know a little more about than these other cases.

The Vice-Chairman (Mr. Andrew Telegdi): The Bombardier case is not in this chapter.

Mr. Leon Benoit: Are you saying you are going to limit me?

Mr. Rey Pagtakhan: Mr. Chairman, what I am seeing here is a debate between a member and the chair ensuing on a likely point of order. I think we have to trust the judgment of the chair. If we disagree with the judgment of the chair the next procedure is to challenge the ruling of the chair.

Mr. Leon Benoit: Mr. Chairman, clearly I was not questioning your ruling. I think I made that very clear. I was asking you to clarify exactly what I'm prevented from asking questions about. How much am I censored here? Am I only censored if I use the word “Bombardier”? Am I censored if I use anything beyond that? I have to get guidelines as to exactly how I'm being censored.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, you came to the meeting late, and we spent a considerable time debating that issue. Things had settled down and then you raised it again. If you refer to chapter 4, the content of chapter 4 reported to us by the Auditor General, that is the direction we would like you to take.

[Translation]

Mr. René Laurin: Mr. Chairman, on a point of order. I'm sorry we're having this whole discussion, supposedly so as not to indispose our witnesses. I'm sorry, but I get the impression that we're making them far more uncomfortable doing this than if we had been allowed to put the questions they could have refused to answer themselves simply by stating this was not the subject they prepared for today. We're not considering these people as adults who could tell us that themselves. We're trying to speak for them.

The real reasons the questions are not being accepted are different than those that are being raised and that's not very flattering for the members, Mr. Chairman. We're not giving a very good example to these people who are very civilized even though they belong to the military. Our attitude must not be proving an inspiration for them.

[English]

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, in three minutes could you have something relevant to chapter 4? And please leave out Bombardier at this point. You can raise that at the defence committee.

Mr. Leon Benoit: So it's only Bombardier that I'm not allowed to refer to.

The Vice-Chairman (Mr. Andrew Telegdi): It has been abused during the meeting, so I'm asking you to stick to chapter 4.

Mr. Leon Benoit: If I refer to Bombardier as company X and ask for information on that basis, is that acceptable?

The Vice-Chairman (Mr. Andrew Telegdi): No. Mr. Benoit, it is not in the report.

Mr. Leon Benoit: In the House of Commons, with all due respect, even though you are supposed to keep your debate relevant, you are certainly allowed to use it as an example to explain. You can use an analogy, you can use a situation you feel is comparable. You are allowed that latitude. I'm really quite shocked. I've been on five committees over the last five years.

Mrs. Sue Barnes: I just want to reiterate a point of order. I thought this had been ruled on, and now I'm hearing the same arguments I heard a couple of minutes ago. Either you respect the chair's ruling or you appeal it. But you move on.

Mr. Leon Benoit: Mr. Chairman, again what I'm asking for is some clarification on your ruling.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Benoit, I have given you my clarification on numerous occasions. I don't want to waste the rest of the time we have for witnesses to go over this point. I'm saying this for the final time, or I will move on to the next speaker. If you can ask your question without getting into Bombardier, which is not relevant to chapter 4 of this report, go ahead and you have three minutes. Otherwise I'll move on to the next questioner.

• 1700

Mr. Leon Benoit: On the issue of sole-source contracting, I would like to ask Mr. Lagueux, who has dealt with defence contracting, if only one company would be considered for a contract if there are other companies that could bid on the contract and they reasonably could be expected to fulfil the requirements of that contract.

Mr. Pierre Lagueux: If there are several potential contractors in Canada that can meet a particular requirement and normally the approach is competitive, government contracting guidelines state that the competitive approach to contracting is normally the first approach that one uses in terms of soliciting bids for the Government of Canada.

Mr. Leon Benoit: As an example, to get some clarification on that point, if the military were looking at a training program that also involved some equipment, and if there were possibly two Canadian companies that would qualify and could meet the conditions of the contract, as well as an American company, would the contract be offered to all three companies?

Mr. Pierre Lagueux: Using your hypothetical example, Mr. Benoit, there are rules in Canada as part of contracting with respect to Canadian content regulations. You put American and Canadian companies in there. This depends on the type of contract, the value of the contract, the type of equipment that is being procured. There are a lot of different factors to be considered. Normally one looks at Canadian contractors first, and if there is sufficient competition within Canada, one competes within Canada.

Mr. Leon Benoit: But if there isn't sufficient competition within Canada, you would consider going outside.

Mr. Pierre Lagueux: Again, there is no cookie-cutter approach to large, complex acquisitions. I think the rules you are looking at when dealing with simple, off-the-shelf things are fairly clear. In large, complex acquisitions the Government of Canada strives to obtain value for money.

Mr. Leon Benoit: What about service contracts?

Mr. Pierre Lagueux: It tries to meet the operational needs. It also looks at meeting industrial regional benefits. There are many factors that have to be considered in large, complex acquisitions, whether they be for capital equipment or for services, Mr. Benoit.

The Vice-Chairman (Mr. Andrew Telegdi): Thank you, Mr. Benoit; your time has expired.

Ms. Barnes.

Mrs. Sue Barnes: Thank you. I'd like to ask some questions on chapter 4.

On the retrofit costs, I understand that you are now going to table those costs, if any, from those projects. I want to talk to you specifically about your team approach to acquisition reform and the plan you have given to the Auditor General within the last week. In that reform plan, are there any areas where you have covered timely operational testing? If so, could you please elaborate?

Mr. Pierre Lagueux: As I said before, we do work already in the team approach to large, complex acquisitions. PWGSC is involved in the contracting. Industry Canada is involved in ensuring industrial regional benefits. Objectives of government are met.

With respect to the acquisition reform plan, the first draft of which we now have put forward, we are really looking at trying to streamline the acquisition process to make the process more user friendly, if I can use that, making it easier for industry to compete, develop partnership or working in partnership with industry and reducing the length of the process, reducing our costs and reducing the overhead to acquire the equipment more quickly that meets the operational requirement.

• 1705

With respect to operational tests, as I said before, these have always been a factor in all our acquisitions to date. Again, I think the disagreement we have with the Auditor General is the timing of when that is done and when that can be done. Again, that varies from project to project. We have done operational testing in the MCDV, in the Coyote vehicle. When that was done is where we have the disagreement. I don't think we need to change the acquisition process to ensure we do operational tests. We do them now.

Mrs. Sue Barnes: So the answer to the question is that there is nothing in the reform plan that affects timely operational testing. Is that what I can take from your answer?

Mr. Pierre Lagueux: There is nothing that deals specifically with operational tests in this acquisition reform. I was about to say that we have looked at the whole testing and evaluation process within DND. We did a complete review audit of that about a year ago. We are making changes to that to ensure that we are making the best use of the facilities we have and ensure it is geared to the highest-risk areas within certain projects.

Mrs. Sue Barnes: Could I have your comments on that from the Auditor General's side, please?

Mr. David Rattray (Assistant Auditor General, Office of the Auditor General of Canada): As indicated earlier, Mr. Chairman, we did receive the initial draft of that plan late last week. I think it was Thursday or late Wednesday. We've done just a very preliminary review of it, so we're not really in a good position to do responses at this time. There is nothing in there on operational testing that we saw. I take Mr. Lagueux's point. In responding to the draft plan, we will probably be coming back with comments that I am sure will indicate our continuing point on operational testing being put earlier in the process wherever possible and wherever reasonable.

Mrs. Sue Barnes: Given that we will be voting now, I thank our witnesses for having to go through this not normal meeting. I'm sure there are issues I could tie in that I'm very interested in that are before the forces right now, but unfortunately they are not related to chapter 4. I'm still very much concerned about them.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Grewal.

Mr. Gurmant Grewal: Mr. Chairman, like my colleagues, I would like to ask questions on chapter 4. I would like to carry on from where I left off earlier. My question was related to lack of documentation. I asked a specific question concerning several instances where the Auditor General make reference to lack of documentation or improper documentation. I got the answer to a very old case in 1984, and I was told by Mr. Lagueux, in response to the question, about only one issue.

As a point of clarification, I will go to paragraph 4.86, which states:

Documentation of risk management for the other five projects was either incomplete or unavailable.

I would like to find out, since we are dealing with billions of dollars, why is the management information system not working in this department, and why are the documents incomplete and unavailable? What is being done to assure us in this committee that the documents will be complete in the future, not only for one project but for more than one project?

Mr. Pierre Lagueux: Thank you for that clarification. I think I can shed some light on it.

The specific paragraph you relate to, 4.86, talks about documentation of risk management. The Auditor General in his report has said that for five projects we did not carry out the necessary risk analysis that he thought was required. Therefore it is in that sense that the documentation is incomplete or unavailable, in that we did not carry out the analysis. Therefore there is no documentation to support that analysis, since we did not do it.

Mr. Gurmant Grewal: Thank you for that.

Just to clarify, the Library of Parliament has done research and it is referring to several instances of not only risk management, but it is talking in general. I would like to get a clarification on this point from the Auditor General before we move on. Was it only one project where the documents were incomplete or unavailable, or more than one project?

Mr. Peter Kasurak: Are we confining ourselves to risk management here?

Mr. Gurmant Grewal: No, generally.

• 1710

Mr. Peter Kasurak: In general, we found many cases in terms of risk management. Specifically, it was our expectation that we would find a report. Very often the only documentation that we could find was the actual few paragraphs or page that would be in the Treasury Board submission itself. For many other projects we found that studies did not seem to have been undertaken during the requirement stage that we thought would have been prudent to do. We think this applies to more than one area.

Mr. Gurmant Grewal: Mr. Lagueux, I would be interested to know not what happened but what is being done to rectify it.

Mr. Pierre Lagueux: With respect to risk management, I think I answered the question earlier. I went through the steps we are taking to improve our ability to do risk management, including better information as to the specifications of the contractors to come up with risk management plans, better training for our people and so on. On the type of risk management the Auditor General says was not there in the past of the risk analysis, I think we are dealing with that very well today.

Again I would point out that different projects require different levels of risk management. I think that's where we perhaps disagree with the Auditor General. In terms of having one approach to risk management for all projects, we would tend to tailor it to the various projects.

With respect to the studies the Auditor General has said were not done, again we would have to put those in context of what studies need to be done. In all cases, there is a statement of operational requirement put forward by the operational staff, by the military staff, not by the department. That is the basis on which we developed the contract specifications. Additional studies can be done if they are felt necessary, but again, it's a case-by-case basis.

In terms of the complexity of the project we are looking at, if we are looking at a brand-new requirement, acquiring a piece of equipment that is already in service with another armed force and therefore we know a lot about that equipment already, the depth and extent of the studies will vary from project to project.

Mr. Rey Pagtakhan: Reference has been made to the need for timely studies and analysis on a more frequent basis. Do you subscribe to that, Mr. Judd, as a matter of principle as recommended by the Auditor General?

Mr. Jim Judd: As a matter of principle, I guess I do.

Mr. Rey Pagtakhan: What is the cost of doing timely analysis and studies?

Mr. Jim Judd: I don't know that I could answer that. It would depend on what the project was that was being evaluated and how much time and effort would be required to do the analysis and evaluation. It would vary from system to system.

Mr. Rey Pagtakhan: To the Auditor General, you indicated the need to improve the capital acquisition management practice by having greater reliance on timely studies and analysis and not merely on professional judgment. You made a distinction between the two. I suggest that professional judgment should have included timely studies and analysis.

Having said that, you made a distinction. My question is whether you had an opportunity to analyse the concordance of judgment as a basis for a right decision and timely analysis and studies as a predictor of a right decision to be able to conclude that timely analysis of reliance would be a greater predictor of success than primarily professional judgment. Has that comparative study been done?

Mr. Peter Kasurak: The short answer is no. The focus of our concern was that studies were done against one standard, usually mid-intensity combat standards. These then set various requirements or evaluated equipment as deficient. When the specifications for the contract were written, these were then rejected through professional judgment. It is the disconnect between those two, studying under one set of circumstances but then going ahead and buying and thinking of apparently another, that concerns us.

• 1715

Mr. Rey Pagtakhan: In terms of contracting by the department, a major function remains outside the department. Do you see that as a problem in the department, that contracting is done outside the department?

Mr. Jim Judd: I don't know that it is necessarily a problem. I think there are aspects of it that we would like to improve upon, as Mr. Lagueux has discussed in terms of his work with the other departments and agencies that are involved. We have not yet reached the stage of perfection.

Mr. Rey Pagtakhan: I want to put this question to the Auditor General, just to be clear. Is this your recommendation, or did you just make it as a statement of fact? Do you recommend decentralizing contracting to the point where the department, even on major acquisitions, would be able to undertake its own contracting?

Mr. Denis Desautels: No, Mr. Chairman, I don't think we were recommending that. For the record, I would tend to agree with the answer that Mr. Judd just gave.

Mr. Rey Pagtakhan: A comment was made by Mr. Lagueux earlier that indicated that some of the evaluation and testing may be unrealistic to suppliers. Are you satisfied with that explanation?

Mr. Peter Kasurak: Once again, depending on the contract, there is a wider scope than the department is currently exercising. We have noted in terms of vehicles, for instance, that foreign militaries very often acquire one or two off-the-assembly-line items and put them through fairly extensive trials, sometimes for a couple of years, before they purchase.

We think there is more scope in this type of contract for upfront testing and evaluation.

Mr. Rey Pagtakhan: When it refers to military off-the-shelf equipment, are you satisfied that less testing and evaluation is acceptable?

Mr. Peter Kasurak: It depends. I think what it depends on is how closely the foreign uses of equipment model our intended uses.

The problems that we experienced with the Griffon were unexpected, even though the Griffon was in service with the Norwegian air force. Apparently there is something in our operational profile or climatic conditions that created problems.

One has to do this judiciously, but, yes, the closer the equipment is to final form and the closer it is to our final requirements the less risk you are accepting by not giving it the complete battery.

We agree with the department on that. We just think that there is a greater opportunity and perhaps our feeling is that the risks may be a little higher than the department has assessed so far.

Mr. Rey Pagtakhan: Thank you.

The Vice-Chairman (Mr. Andrew Telegdi): Mr. Harb...?

Mr. Mac Harb: I have two questions and I would like to hear the comments of both the Auditor General as well as the department of defence.

The first one has to do with the methodology that was used when you did the auditing of the project that National Defence was involved with.

I would also like you to comment on what the reaction was when you issued the report and gave them a chance to respond to it. Where are the common grounds between you and the department? What are the points that you both agreed to with respect to, yes, there is a need for action here; yes, we are going to respond to some of the concerns you have raised?

What are the points of disagreement and what is the action plan that both the department as well as the Auditor General have in place or are thinking about having in place so you can reconcile some of the points of disagreement? That is the first question. I would also like the department to respond to that.

The second question has to do with the whole notion of purchasing. We spoke a little earlier about the consultation which has taken place with the Department of Public Works and Government Services Canada, as well as with Industry Canada. Where would you see that leading to? Would you see that leading to a point where we will have one point of purchase, or would you see it always continuing to be two separate entities co-operating with one another?

• 1720

I would like to hear the perspective of both the Auditor General and the department with respect to those two questions, if that is possible.

Mr. Peter Kasurak: Let me respond to the first question, Mr. Chairman.

To summarize, I think we would agree overall with the department on the need for and the general direction of acquisition reform. The only thing we would probably disagree with is the speed, but auditors are always in a hurry.

In terms of disagreement, it is probably also fair to say that we see a bigger need for tightening up risk management and doing more testing and evaluation than the department does. As I said in camera, nothing absolutely terrible has happened yet, but we feel that the deficiencies we identified constitute a wake-up call. There is disagreement between us on that.

Finally, this is an area where I would say I don't know. I am not sure whether the department really agrees with us on the need to improve requirement analysis or not. It was a big point with us. Reading the department's response, I am unsure as to whether they think they already have this one under control or not.

I am sorry, but in composing the answer to that question I didn't get your second question.

Mr. Mac Harb: The second one had to do with purchasing—whether we should have two points of purchase, Public Works and National Defence, or whether we should have one entity.

Mr. Denis Desautels: Mr. Chairman, we don't feel very strongly about that. I think either system could work. I will repeat what I said earlier. The way Mr. Judd explained that made a lot of sense to us.

Mr. Jim Judd: If I can, I will answer the second question first.

Mr. Mac Harb: Sure.

Mr. Jim Judd: I suspect that we will continue to have a multiparty process because, in many respects, each of the parties has a different set of interests to represent in terms of the process or in terms of departmental operations.

In defence procurement, for example, we would be the client, the ultimate acquisitionist of the product. Treasury Board is responsible for setting the rules of conduct for government in terms of its operations and administration, including this area.

PWGSC is there as the contracting body, if you will. Industry Canada is involved because, of course, it has quite legitimate interests in regard to the health and welfare of Canadian industry and how its needs can be met or served in this process.

That would be the answer to your second question.

With respect to the first question, very quickly I would say that I don't think there are a lot of major or substantial differences between us with respect to these projects. As is always the case, there was a post-audit discussion among the respective parties as to the drafting of the report, which ended up being this kind of report.

I would also add, though, that I hope personally to pursue some of these issues beyond just this report with the Auditor General's staff, just by way of exchanging ideas on how we do business and where improvements can be made, outside a very formal channel like this.

The Vice-Chairman (Mr. Andrew Telegdi): Thank you.

Mr. Desautels, could you do a one-minute wrap-up for us? The bells are tolling.

Mr. Denis Desautels: Thank you, Mr. Chairman. I will try to be brief.

I would just like to remind the committee that there is a definite link between our chapters 3 and 4. Chapter 3, if you recall, raised the difficulties of balancing resources with the mission that the department has, particularly with respect to the capital budget part of their budget.

• 1725

In this chapter we basically concluded that budget limitations have resulted in the acquisition of equipment with lower military capabilities, such as the Griffon, the maritime coastal vessels and the Leopard tanks, or fewer units, such as the Eryx missiles and the Coyote vehicles.

As we heard today, I think there is general agreement that some compromises had to be made, and compromises perhaps that were quite valid, resulting in equipment that can do certain functions quite well. But it has not been demonstrated to us yet that as a result of these compromises the equipment that was acquired really helps the department meet the objectives of the 1994 white paper. We feel there is certainly a lot of doubt left with respect to that.

In terms of the acquisition process, I believe there is general agreement on the need to re-engineer the process. We are encouraged that the process has begun. The stated date of completion is sometime in 1999. We will monitor that and report back to this committee as part of our follow-up to these two chapters in due course.

Thank you, Mr. Chairman.

The Vice-Chairman (Mr. Andrew Telegdi): Thank you.

The meeting is adjourned.