NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 8, 2000

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[English]

The Chairman (Mr. Pat O'Brien (London—Fanshawe, Lib.)): Ladies and gentlemen, I'd like to call to order the meeting of the Standing Committee on National Defence and Veterans Affairs. I wish everyone a happy new year and welcome our return from our break from Parliament.

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We have some very interesting people with us today to share their expertise. Just before we go to them, I do have two procedural matters that members have indicated they'd like to raise. I'll first go to Mr. O'Reilly for his point.

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

I don't want to interrupt the meeting for any great amount of time, because I know we have some very important and interesting witnesses to hear. But I received from you, Mr. Chair, a letter and also a copy of a letter sent to you by the Auditor General of Canada questioning my ability to be a member of this committee and to ask questions of the witnesses.

I believe this is a matter for the committee, although it is a breach of privilege for an individual member to be sent a letter from the Auditor General. If anyone here was in that same position, I'd ask you to consider that and that if the Auditor General, who is a clerk of the House of Commons, cannot be asked what I would consider questions that did not go over the line as far as anything personal was concerned but actually asking the expertise of the particular witness who is a member of the Auditor General's staff.

So I'm in the unusual position of having to answer a copy of a letter that was sent to you, Mr. Chair, from the Auditor General of Canada to which you have already replied. For the record, Mr. Chairman, I did not receive the Auditor General's letter. I thank you for sending it to me, because I didn't know what it was when I received your copy of the letter in reply. So I thank you for that.

I would ask, Mr. Chair, if you could deal with this. I want to put it on record so that we can deal with it sometime in the future, not now, unless you so choose. But I think it would be befitting if the members of the committee were given a copy of the evidence of that day so that they can look at the questions that were asked and for them to read the letter from the Auditor General to an individual member of Parliament criticizing his line of questioning. So I would ask for that to be put on the record and distributed to the members. If they feel I was out of line and an apology is necessary or if they feel that—

A voice: He's out of line.

Mr. John O'Reilly: —he's out of line...

Is it the job of the Auditor General, who is a clerk of the House of Commons, to question individual members of Parliament, and does that in fact create a breach of parliamentary privilege in the committee?

As I give you a reply to that, I would say that if the whip of our party decided that I was asking too tough questions and took me off the committee because the Auditor General complained, I would think that then we all should examine just exactly what we're allowed to do in committee.

So if I may, Mr. Chair, I'd like to file those two letters and ask that they be circulated to all members, and we could deal with it at a later time.

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

We'll take note of your concerns. I have asked the clerk to ensure that a translated copy of the evidence of the relevant part of that meeting is circulated, as well as the Auditor General's letter to me and my response to the Auditor General. That will all be circulated shortly to all members. When all members have had a chance to look at that information, we can confer. We'll put this on another agenda in the near future. The evidence is on the Internet, but we're going to make sure you get a copy in case you're not familiar with the Internet.

Mrs. Elsie Wayne (Saint John, PC): Mr. Chairman, may I comment?

The Chairman: Yes.

Mrs. Elsie Wayne: I just would like to thank all of my colleagues around this table and Bob and you, Mr. Chairman, for all the help you've given with regard to the merchant navy men. It was a great day, I have to tell you, last week, because after fifty years they finally got their compensation package. I want to thank all of my colleagues around this table for that.

They're getting a few phone calls and a few applications, according to the parliamentary secretary. He says they've been very busy with this.

Mr. Bob Wood (Nipissing, Lib.): I'll give you an update in a second.

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Mrs. Elsie Wayne: We just have to make sure there's enough money in that budget, darling, because if there isn't, we're going to be back here at the table, that's for sure.

The Chairman: I had a request from Mr. Wood to allow him to speak first. I was prepared to go to him first, but apparently we didn't have all the material he needed. So now I'm going to go to Mr. Wood and give him a chance.

Mr. Bob Wood: It was nice of Mrs. Wayne to read my speech.

Anyway, I too want to update all the members of the SCONDVA on the recent merchant navy compensation package. As you all know, on February 1 the minister accepted the proposal that was put forward in December by the merchant navy and the other veterans associations. Copies of the press release and the background material were hand-delivered to all SCONDVA offices at the beginning of the press conference. They were also made available to you electronically. If any of you have any technical questions regarding the package, I suggest that you get in touch with the minister's office directly.

I'm pleased to report that the response to this announcement has been very strong, and applications are being received and processed as quickly as possible. If MPs are looking for application forms, they can be downloaded from the Department of Veterans Affairs website, they can be obtained from the minister's office, or you can call my office. In fact, I even have some here today, if anybody needs some.

Finally, on behalf of the minister and also the deputy minister, I would just like to thank all the members of the SCONDVA for the work they did last year on what was a difficult and emotional issue. I think, as Mrs. Wayne has said, we're all relieved to see this thing resolved. Part of how that came about was of course our ability to work cooperatively and in good faith, and I want to thank everyone for that as well.

Just to give you a little update on the response so far, we had 20 operators going around the clock for the first 24 hours, and, believe me, they couldn't keep up. They're now on 12-hour shifts. We're trying to get the cheques out within the next two to three weeks. For those who are interested in some trivia on this merchant navy activity report, in the first four days we had 5,703 calls. We sent out over 5,000 applications.

The Chairman: Good. Thank you, Mr. Wood.

I want to get to the witnesses, who are waiting patiently.

We've had a couple of procedural matters that members asked to have some time to raise.

I'd like to say thank you to Mr. Wood, as parliamentary secretary on that difficult file, and to Mrs. Wayne, who showed a particular interest and perseverance, and to everybody who participated in those long and in many cases emotional hearings on that issue. The matter is now concluded and in the hands of the minister. Thank you all very much.

With that, I thank the witnesses for their indulgence. Invariably, we have one or two procedural matters that come up. If colleagues have questions or comments about either point that was raised, we can entertain those after the witnesses leave. I know there's a matter of an airplane, and we can all relate to that, coming here weekly by airplane.

Let me welcome our witnesses today. I will introduce to you Mr. Richard Codrington, who is the British deputy high commissioner. Richard, you're most welcome, and I'll ask you to introduce the other people with you.

Mr. Richard Codrington (Deputy High Commissioner, British High Commission Ottawa): Thank you. We welcome this opportunity to share our thinking this afternoon with you on smart procurement or the way we now organize our defence procurement activities in the U.K.

I'm very pleased to be able to introduce to you John Taylor, who's personally very expert in our procurement practices, having spent a career in the business. Most recently he spent three years in our embassy in Washington, responsible for defence acquisitions there. In September last year he was appointed team leader for the Ministry of Defence's smart procurement initiative, where his mandate is to drive through a radical program of change to reform MOD policies, processes, and organization for the acquisition of defence equipment. So we're very pleased he was able to come this afternoon.

I'd also like to introduce the members of our defence team at the high commission: Brigadier Philip Springfield, our defence adviser; and Group Captain Tim Williams, our naval and air adviser.

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We're pleased to be with you this afternoon. In our capacity as technical experts, we'll try to provide you with a full briefing on U.K. practice. If it suits you, we plan to show a video for about 25 minutes and then John Taylor will give a 10- or 15-minute presentation. We'll then try to answer your questions about our system and our experience to date, without seeking to compare or contrast with the procurement practice in other countries or to comment more widely. Thank you.

The Chairman: Thank you very much. A translation will be available for members as we watch this video.

[Editor's Note: Video Presentation]

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The Chairman: Mr. Taylor, that was a very interesting video.

Mr. John Taylor (Team Leader, Smart Procurement Initiative, United Kingdom Ministry of Defence): Thank you very much, Mr. Chairman, and thank you for the opportunity to come and talk to you and your committee on what I think is quite a radical change program within the Ministry of Defence.

What I would like to do over the next 10 to 15 minutes or so is just draw on some of the key messages that were touched on in the video. More importantly, from the point of view of my presentation, I want to give you some insight into the way we are actually implementing the change program, how we are taking the key things you've already heard about and applying them throughout our acquisition organization.

As our previous secretary of state said, the watchwords for smart procurement are “faster, cheaper, better”. We have a slightly clearer articulated aim for smart procurement, which is to enhance defence capability by acquiring and supporting equipment more effectively in terms of time, cost, and performance. If you want to summarize that, we say we want to deliver projects on time in less time, on cost at less cost.

There are probably six principal concepts that were touched on in the video that are really driving our change program. The first is the concept of integrated project teams, bringing together all the key parties that really form part of the delivery mechanism. We are moving ourselves away from a more functionally oriented organization to one where we really do have integrated teams doing the business.

Secondly, we have a set of streamlined processes where we're looking for the remainder of the organization to support the integrated project teams in really delivering.

Third is the whole life culture. We recognize that it's no good simply making decisions based on acquisition costs alone. A lot of the costs of any individual equipment project come out through life; therefore we have to reflect that in the way we do business.

The fourth concept is a clear distinction between the central customer and the delivery teams themselves.

Fifth is applying best practice acquisition. We are learning from experience and applying that to our future business.

Last but not least is the new relationship with industry. This involves getting industry engaged in the process early and inclusively, so that we get the best of all the participants in the overall process.

What are the processes themselves? We're moving towards a much more streamlined approval mechanism. The video talked about our two-gate approval system. An initial gate is very much designed for the point of initiation of a program. The much more challenging main gate is the main investment decision for any equipment capability. That contrasts with our previous approval regime, where we could have four or more approval points. This served to introduce a stop-start set of problems, which didn't really support the overall objectives.

We are looking to increase the amount of investment we make up front in programs so that we really do tackle the risks at the right time in the process.

We're looking to introduce a new acceptance procedure where the central customer is not only responsible for setting the equipment capability required, but is also the authority that accepts the equipment at the end of the day before it goes into service.

We're putting in better incentives to performance. We're trying to move the organization to get into a continuous improvement culture. I'll come back to some of the ways we are doing that.

Our new processes support incremental acquisition so we can get technology to the front line much more rapidly than hitherto.

Finally, we're developing processes for teaming with industry.

I think the video itself described the new acquisition cycle: concept, assessment, demonstration, manufacture and service, and disposal. I don't think I need to say too much more on that other than to really emphasize that our whole approvals machine is now linked to that acquisition cycle.

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Smart procurement is not just about the organization that's delivering the equipment. We identify essentially five major players in the acquisition machine: the central customer; the defence procurement agency, primarily responsible for initial procurement and development of equipment; the defence logistics organization, primarily responsible for in-service support of equipment, very much made up of the hitherto three single-service support organizations, which we are drawing together into a single integrated organization; the defence industry itself; and then finally the second customer, or the front-line user, if you will, who will eventually deliver the military capability using the equipment provided.

With regard to the integrated project teams themselves, the video described all the components of that. In particular, I would highlight the role of the team leader. She or he has a much more enhanced role to play in our new machinery. We're looking for leaders as well as managers, people who can pull together all the disparate elements of the team into a cohesive whole and deliver the output required.

I've put in some facts and figures on the integrated project teams themselves. In the current plan, we have some 136 integrated project teams being brought into being who are, among them, looking after somewhere in the region of 1,150 projects. About 80 of them are engaged in initial procurement within the defence procurement agency, and over 50 are engaged in support.

As the video said, they are led principally at either a one-star level or a full colonel level within the organization. We've been bringing them into being over this last year, starting in April of 1999, and we expect to be finished around the end of April this year, when we will have completely transformed the organizations.

Part of the process of bringing these integrated project teams into being is to take them through what I like to call a “conversion” process. We have to educate them and train them in the new ways of doing business and try to help them discard what I would call the “baggage” of the old way of doing business.

What we do is take them through what we call a “breakthrough” process, a 12-week, fairly intense program where we start by training the team leaders in the new way of doing business. A key part of that breakthrough process is where we get them to focus on the performance time and cost improvement targets to which they are actually going to strive to deliver.

This is quite a new way of doing business. We have two types of targets. We have hard targets, where you can see a plan as to how they might be delivered, but we also tell them that they have to produce what we call “stretch” targets, or out-of-the-box approaches, if you will, which are designed to encourage more radical thinking.

At the end of the breakthrough process we go through an assessment, where we actually focus on what the targets are that they've set and what they've actually been able to identify in terms of cost savings, time improvements, or performance benefits. This is done at the aggregate level, across the whole of the organization, and for the individual teams. That's been quite a stressful process for them, but so far we've been very encouraged by the results.

I'll move on to the central customer. The central customer has been an area where we've done a lot of reorganizational and process work over the past six months. Some of this was not fully captured in the video.

First of all, we have completely restructured the central customer organization very much around what we have called “capability managers”. Rather than having the situation we had previously, where the requirements branches were organized along environmental lines—land, sea and air—we've now completely reorganized those into capability management areas.

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The four key areas now in place are strategic deployment, strike, manoeuvre, and information superiority. So here, you see, we're focusing much more on the military mission rather than on the single-service focus. That new organization is bedding down now and developing its new processes.

These four capability managers between them have some 15 directors of equipment capability, who form, if you like, the other end of the relationship with the integrated project teams.

You heard in the video about capability working groups. This is the primary mechanism that the directors of equipment capability use to draw in all the skills and expertise they need, first of all to produce their capability area plans, and secondly to give them a very informed picture of how those capabilities can be put in place.

Interestingly, we anticipate that these capability working groups, particularly for collaborative programs, will involve allies as well, which I think is an encouraging way to do business.

The key relationship, then, in our new way of doing business is the director of equipment capability, representing the customer, and the integrated project team leader, representing, if you like, the top of the supply chain.

We are also trying to encourage a mode of doing business where rather than perhaps the old Cold War environment, where the requirement was the fundamental driver, if you like, we are encouraging both the team leaders and the equipment capability directors to start thinking trade-off, trading off cost, performance, and time, so that we really do start to optimize our capability.

What of industry? Industry was talked about a good bit in the video itself. I think that is the area where the greatest level of culture change has had to be put in place. We have supported many sessions with industry, at both the individual team level and more generally, to look at the right way of engaging industry in this new machinery in a way that did not compromise either the public accountability of the defence ministry or the commercial interests of industry, recognizing that we will never totally have commonality of objectives.

We certainly see the benefits of industry being involved, being focused on their understanding of requirements and constraints, being improved. The benefits to MOD are very much to get industry's participation in this trade-off between performance, cost, and time, and I think at the joint benefit level, to reduce the bureaucracy and the iteration when it comes to contract placement, which ultimately leads to a more streamlined process and inevitably reducing cost.

We are trying to build a more transparent and trusting relationship with our industry counterparts, but inevitably, as a process, it takes time. The tools we see being used for that fall into a number of categories. I think there was perhaps a perception in the early days of smart procurement that this meant that the Ministry of Defence was moving away from competition as one of its principal tools. I have to say that is not the case. We still see competition as being a very potent tool, but it is one that has to be applied consciously and sensibly. The main criterion we use to decide whether competition applies or not is whether we think that is going to give us best value for money. Clearly, in many cases it still will.

We are, however, looking at different ways of incentivizing performance. One of the diagnostic exercises we got done in the very early days suggested we weren't incentivizing sufficiently strongly, either positively or negatively. Therefore, we are looking at new ways of doing that to support the business.

We see much more scope for teaming. We do see there is scope for longer-term partnership agreements, particularly when we get into what I think you call in your system “alternative service delivery” arrangements, where we are looking over perhaps a 10- or 15-year timeline for service provision.

More significantly, perhaps, when it comes to the relationship between the integrated project teams and their industry counterparts as well as having the framework of the contract to govern the relationship, we also see large benefits in, if you like, a non-contractually binding code of conduct or charter being drawn up between the MOD team leader and his industry counterpart to govern the way the integrated team is actually going to operate. The examples we have on that are proving very beneficial.

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Finally there's the subject of gain share, which was touched on earlier. This is where we are actually actively looking to identify those contracts we may have in place already that might benefit from selectively reopening to see if there's more benefit we can pull out. I have to say that is a challenging thing to do. We only have two or three fairly modest examples so far, but we're working that quite hard.

There may be quite a lot of interest in what lessons we've learned from our engagement with industry, particularly over the last six to nine months or so. I think it's fair to say when we started there was a lot of caution and there was skepticism on both sides, as both parties adjusted to this new way of doing business. But I'm pleased to say the commitment has been very positive so far.

We are starting to see a much greater exchange of information that is mutually beneficial to achieving project objectives. We still have some cultural differences to overcome, which will only happen with time. Getting the overall smart procurement message right down the supply chain into the smaller companies is still a challenge we are working on, but we are seeing some very encouraging signs of change.

What of the implementation program itself? We actually started planning the change program in earnest in September 1998, just after the defence review was published. That planning phase was completed in March last year, and the implementation team is now up to full strength of about ninety, including, incidentally, about eight industry representatives we brought in to help us implement the change.

We used a number of pilots to test the new processes. In fact the future offensive air system that was mentioned in the video a number of times was one of those pilot projects. One of the challenges of this change program has been to make sure all the interested parties in the change process have been consulted as we've taken the change forward. That's proved to be very important.

So where are we today? Well, we're almost completed our transition year. We started in April last year. We expect to complete the organizational changes at least by the end of April or early May this year. About half of our integrated project teams, half of the 136 I mentioned, are now what I call flying solo. They've been through their breakthrough process and they're working the new way of business. We are continuing to talk to them to encourage them to stick to that new way of doing business, which presents some interesting issues, as you might imagine. And we are in the process, at the moment, of breaking through the last wave, as we call it, of integrated project teams.

The Defence Procurement Agency itself was brought into being on 1 April last year, and it itself has gone through a major restructuring to accommodate the new IPT-based organization. The Central Customer formed up on 4 October last year and has been going through its own breakthrough process. The Defence Logistics Organisation, also in its foundation year, as they call it, goes into operation fully as of 1 April this year. So in overall terms we're making fair progress.

Let me just try to summarize what I've said. We have a pretty aggressive implementation program. We are driving this change through to the best of our ability. We're in the transition year. We are developing and refining the new processes, recognizing that you never get everything right the first time, and where we are learning from experience, we are making those refinements as we go along. The IPT-based structure is largely in place. The new Central Customer is largely in place. The challenge for us now, though, is to really start altering the culture and the behaviour so that people can really drive out the benefits. To that end we're putting a great deal of resources into communication and training.

Mr. Chairman, I hope that gives you a good flavour of what we're doing in the U.K. I'll be happy to try to answer any questions you may have.

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The Chairman: Mr. Taylor, thank you very much. Indeed it was a very thorough overview of the important process you've been through, and I know our colleagues here will have questions.

Mr. Taylor has to leave at 5:15 for a plane, and I think we will be probably called to the House around that same time, so the deadlines mesh rather well.

With that, I'll recall for all members on both sides of the House that all these gentlemen are officials with the British government and are here to comment on their process, and not in any way on the Canadian system. I'm going to ask you to bear that in mind as you seek to draw on their expertise. Okay?

With that reminder, I'm going to start with the opposition, as per our rules. Mr. Hanger for seven minutes.

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

Thank you, gentlemen.

I'm curious about what actually initiates the whole process. You talk about from concept assessment and on down the line. Obviously there's a decision somewhere that there's going to be a need for procurement. Where and how does that manifest itself? Is it through the government, the Parliament, saying they need fifty attack helicopters, and then the process is initiated?

Mr. John Taylor: Let me try to describe that piece of the process for you.

In our old way of doing business, our requirements generation, our program planning, and our equipment budgeting were dealt with in three separate parts of the organization. Under the new organization, under the Central Customer, we have drawn those three important headquarters activities, if you will, together in that organization.

The reason we have done that is we are giving the Central Customer the responsibility for producing on an annual basis what we call the equipment plan. That equipment plan is a prioritized, balanced, coherent plan that sets out the overall equipment capabilities that our Central Customer sees as being needed, firstly to meet the needs of our defence commitments overall, so it flows down from our top-level defence plan, but secondly to make sure we have a properly considered and prioritized plan to meet identified capability gaps that we see over a ten-year period.

So by bringing those elements together, we have brought a much sharper focus to the equipment planning activity, which is repeated on an annual basis and which will ultimately drive the actual acquisition machine itself.

Within the Central Customer, that equipment plan is made up of the fifteen components from the fifteen directors of equipment capability that I mentioned in my presentation, because they have, if you like, a piece of the overall mission area that they are responsible for. The process that is gone through is one where, by drawing upon operational analysis, in-service experience, and the government's overall posture as far as defence is concerned, those are the in-feeds to their plans, which are then used to decide whether a particular capability will be satisfied by initiating the acquisition machine.

Mr. Art Hanger: So ultimately, from your defence plan, the need for a certain capability is recognized and it's initiated. From that defence plan, which would accommodate, I would assume, the security of Britain and their interests outside of that, there must be a general agreement then within Parliament by all parties to involve themselves and say “Yes, this is an issue we all agree on,” and things move ahead after that agreement is reached in general.

Mr. John Taylor: As part of the overall annual cycle, one of the outputs of the Ministry of Defence is a document that hitherto was known as the statement of defence estimates, which effectively is a summation of what the Ministry of Defence is going to do to satisfy the government's overall commitments. Inevitably, the input to that will be debated within the cabinet, as appropriate, and that will be used to inform the overall process.

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Mr. Art Hanger: One thing I didn't hear from you at all regards the involvement of other government departments, especially rating non-military considerations. I would assume that would start maybe before the concept stage, or maybe not, where there may be input from certain political circles saying “Well, Edinburgh has a high unemployment rate”—I don't know if it does or not—“and we'd like to see some job creation programs up there”. But you know this is going to add cost to your overall budget. Are these considerations entered into at the beginning, or are they even considered at all?

Mr. John Taylor: They are certainly factors that are considered, but they generally are considered at the point in the process where the major investment on a particular equipment capability is about to be made.

I tried to identify for myself the main players in our government system that have a part in this. Inevitably, our colleagues from the Foreign and Commonwealth Office have a role to play in the overall commitments arena, our Department of Trade and Industry has a role from the point of view of industrial base considerations, and our treasury has a role to play in the overall approval of the most major projects where there is a substantial financial commitment.

Within our overall approvals machinery, we involve particularly the Department of Trade and Industry and the treasury in the overall process. But in the new way of doing business, rather than waiting until we are right at the point of a major equipment decision before these departments are involved, we are encouraging our integrated project team leaders to make sure they have identified the role these stakeholders have in particular programs and to engage them early so that they are familiar and there has been the opportunity to debate and discuss any particular interests they have and how those are going to be handled in the overall progression of the project. These are still very early days on that, but the initial signs are encouraging.

Mr. Art Hanger: Thank you.

The Chairman: Thank you, Mr. Hanger. We'll get back to you.

[Translation]

You now have the floor, Mr. Mercier. You don't have any questions?

[English]

We'll go to the government side, to both Mr. Bertrand and Mr. Proud, and then we'll come back to Mrs. Wayne.

[Translation]

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Thank you, Mr. Chairman.

[English]

First of all, I'd like to welcome you to our committee. It's always a pleasure to have such distinguished guests come before us.

I listened with interest to the video. I have four questions. I could ask the four of them right away, and then you could answer them.

First, I'm still not clear on what is involved in bringing in industry. How are they chosen? Are they allowed to bid on the project if they've been in it from the start?

Secondly, what qualifies as a project? Is it its cost, its complexity, or are there other factors involved?

Thirdly, can an IPT team manage more than one project?

You partly answered my fourth question: How long have the smart procurement procedures been in place, and are they producing the savings that were expected?

Mr. John Taylor: Thank you.

The processes for bringing industry into the teams is very much something we are not trying to be overly prescriptive about, because what we're finding is that depending on the nature of the individual programs and the number of industrial players that might have an interest in that particular program, we're very much looking to the team leaders to come up with the right sort of way in which industry gets involved.

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I don't have the material with me, but I have about ten or so charts back in the U.K. where we have a significant number of different models for how this more close-working relationship is actually being put into practice. Let me try to give you some examples.

We have situations where we might have a single prime contractor, for example. The new way of doing business there is that we will quite often have the project manager from the company sitting in the MOD team leader's management meetings as an integral member. In a similar situation, we have the MOD team leader sitting in the industry's management meetings so that we are not duplicating the way that happens.

But then we get into more complex environments where there may be a number of contractors who have been shortlisted, let us say, to bid for a particular program. There we have to be more careful, because there are competition sensitivities, but we are finding a number of interesting ways and interesting structures to manage that situation. In fact we even have one project where the companies that are involved have selected one company to represent their interests in the integrated project team.

You look surprised. I was surprised when I heard that, but these are the ways in which this new way of doing business is manifesting itself.

My sense is that the reason it is happening that way is because those companies are seeing an opportunity from this more close-working as being more beneficial to them than being overly concerned about commercial sensitivities. In MOD, we certainly have the means where if there is a need for a one-on-one dialogue between the MOD side and the industry side, we can facilitate that. That can be part of the rules of engagement or the code of conduct. For each, equally, there will be situations where there is information that MOD wants to share with all the companies, and they can do that, as well.

It doesn't really directly answer your question about how they are selected. We still go through the process of looking to see who wants to be involved, what capabilities they have, and what their track record is in a particular area. Those are all factors that are taken into account in looking at who the long list of players might be. Then, as we go through the acquisition process, that gets winnowed down until eventually we get to our primary supplier.

I think your second question was, if I can paraphrase, what qualifies as a project. This has been quite a difficult one to nail down, primarily because when we analysed the whole of our current procurement business, there were somewhere in the region of 1,100 or 1,200 entities we could describe as projects. Some of them might have been relatively low value, maybe only £100,000, that sort of order, ranging right up to the biggest projects, like Eurofighter, which are clearly multi-million-pound enterprises.

It's up to the capability management area and the Defence Procurement Agency to scope what they see as being a project and to put parameters around it. So that is a process of discussion between the capability customer and the Defence Procurement Agency as the supplier. Within the Defence Procurement Agency, we are putting together what we are calling a “future business group,” which will be able to engage in that part of the dialogue.

We also see that when it comes to integrated project teams having responsibilities for a number of projects, we simply call them cluster IPTs, because they are looking after a cluster of projects. What we have sought to do is to group projects of like nature together, and in that way we get an efficient utilization of resources. Clearly, you could move to one IPT for every project, but then we would have over a thousand of them, which I think would be just a touch unmanageable.

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The final point I think you asked about was in connection with how long smart procurement has been in place. As I said earlier, we're coming to the end of our transition year. I think you can say that we have been on the go for about a year, just over a year now. I think we're starting to get to the stage where, rather than measuring our progress with implementation using what I would call input measures, like how quickly we're rolling out the teams, etc., we're now starting to capture the benefits, particularly of what the early teams are achieving.

I can't go into too much detail because this is very much work in progress, but let me give you the flavour of it. The defence review made a commitment on the part of the Ministry of Defence to take some two billion pounds out of our equipment program, essentially between 1999 and 2008. The whole process we are using for encouraging the teams to set hard and stretched targets is, if you like, our delivery means. We've just started the process of trying to capture the efficiencies that the early teams are identifying.

What I can say is that based on relatively limited subsets so far, we feel we are on track to generate the savings commitment we entered into, but not at the expense of huge cuts in overall capability. As I say, it's still early days yet, but there are encouraging signs.

[Translation]

The Chairman: Thank you, Mr. Bertrand.

[English]

Mrs. Wayne, some questions?

Mrs. Elsie Wayne: I would like to ask a question that is a little different, if you'll permit me.

As a senior representative of the British government, I would like to ask you, now that you're here with us, if you could please explain to us the position of your government with respect to the U.S. national ballistics missile defence system.

The Chairman: It's a fascinating question, but I think it would be inappropriate for me to ask these gentlemen to comment on that.

Mrs. Elsie Wayne: I could switch that around. Ask him if he would like to comment on where they've gone public on September 8, with the Minister of Defence, when they issued a press release entitled “New Tests Promised on Depleted Uranium”, the topic discussed being the mysterious and debilitating Gulf War syndrome. In the second paragraph of the release, it states that

Veterans who were tested for Depleted Uranium... in Canadian tests and are concerned by the results are going to be given the opportunity to be re-tested in Britain.

Have you been doing that with our veterans who have had concerns?

The Chairman: Mrs. Wayne, I'm sorry, but I think—

Mrs. Elsie Wayne: You're not going to let me do that one either.

The Chairman: Yes, that's right.

Mrs. Elsie Wayne: Okay.

The Chairman: You are straining our friendship.

Really, can we can go back to procurement, please?

Mrs. Elsie Wayne: Yes, I will.

When you put these IPT groups together, is there a cost you have to absorb for these IPT people? Are they paid special salaries and what have you? What is the overall cost of all of these organizations that you're putting together?

Mr. John Taylor: The overall organization based on integrated project teams is very much constituted largely from the existing population of acquisition people that we have within the organization, but we are brigading them in quite a different way. So whereas some of our finance staff, for example, would have a line management chain through a senior financier, they are actually being put under the direct line management of the team leader himself or herself.

Mrs. Elsie Wayne: Is the team leader that you choose someone who is within your government structure at the present time?

Mr. John Taylor: That's a very good question. The way we approached the team leader selection is that we have taken about a third of the team leaders and actually competed them.

• 1650

Some of them we have competed internally, very much on that basis of getting the best person for the job, but others we have actually opened to fully open competitions where we've advertised, if you like, in the newspaper to see who from the outside world might be interested. Then there is a third category in which, in conjunction with our trade associations, we have had a set of limited competitions whereby we have opened about a dozen or so posts for industry candidates to come in and compete for those posts.

I'm pleased to say that we actually have two industry-integrated project team leaders, one from an open competition, a gentleman who is leading our future carrier program. I can tell you that he is having a very interesting experience coming from the commercial sector to work in the Ministry of Defence. The second one of our IPTs is looking after battlefield infrastructure projects. Again, this team leader is from an industrial company; you'll forgive me if I don't mention the name. This is all part of the process of getting commercial expertise into our process.

Mrs. Elsie Wayne: May I just ask one other little question?

The Chairman: Sure.

Mrs. Elsie Wayne: Your government must be very supportive of defence procurement. I can tell by what you've been telling us about the system you're putting in place that the need for whatever is required for the armed forces is a priority for your government. Is that correct?

Mr. John Taylor: I think that's absolutely correct. The video that you saw earlier featured our previous secretary of state, Mr. Robertson, who was a very strong advocate for the reforms we are engaged in. I'm very pleased to say that our new secretary of state, Mr. Hoon, is equally supportive. Our other defence ministers are also monitoring this process very actively.

Once every two months, I report to a group that is chaired by our defence procurement minister. That very much helps to keep the top-level commitment visible.

Mrs. Elsie Wayne: I'll just write to him to get the answers to the other questions.

Mr. John Taylor: I'm grateful for that.

The Chairman: Thank you, Mrs. Wayne. Nice try, but we are on procurement and we appreciate staying on topic.

We have time now for a second round, and I'll go back to Mr. Hanger.

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

What is your position on off-the-shelf procurement?

Mr. John Taylor: I think our position on off-the-shelf procurement is pretty well relatively unchanged. We have always taken the view that where there is a particular capability need we can satisfy using an already developed piece of equipment we will do so wherever it is practical and feasible to do so and where we can demonstrate that it offers the value-for-money solution to meet the customer's requirement.

Mr. Art Hanger: So if a weapons system is something you would want to procure, would there be provisions in there for industrial offset?

Mr. John Taylor: I think it would depend very much on the circumstances of the overall program. We do have an industrial participations policy whereby, as part of our process, particularly when we procure offshore, we look to try to encourage arrangements between the offshore industrial base and our onshore industrial base. It is seen to be a way of improving co-operation between the industrial entities involved.

I think it's fair to say that the U.K. has what I would say is quite a good track record in open international competition. We do procure offshore where it is judged that we get best value for money, but we also realize that we are playing in a global industrial base, an increasingly global industrial base, and therefore anything we can do to help forge the industrial links as well as the government-to-government links is healthy.

• 1655

Mr. Art Hanger: I believe the Royal Navy just commissioned three frigates. I think they were type 23. They just came on line. Is that correct?

Mr. John Taylor: We have an ongoing frigate program. There have certainly been three commissioned in the fairly recent past. I believe there is one that is still in the course of being constructed.

Mr. Art Hanger: The cost of the last three was somewhere in the neighbourhood of 400 million pounds. Is that correct?

Mr. John Taylor: If that is the case, you're better informed than I am. I don't have the facts and figures on that at my fingertips.

Mr. Art Hanger: I believe that is the case. I was rather curious about that price. For instance, Canada has twelve. If you were to look at that, they cost us the equivalent of 4.5 billion to 5 billion pounds, which is considerably more expensive than what it would cost England to make twelve. That would be somewhere in the neighbourhood of 1.6 billion pounds. What are you doing that is so different?

Mr. John Taylor: I'd be very happy to entertain a delegation from this committee to give you some insights into the way we procure our warships. I'm afraid I don't have an off-the-cuff answer to the particular comparison.

All I do know is there has been a lot of effort put into the way in which we've procured our warships over recent years. We are now increasingly relying on drawing on commercial shipbuilding practice where appropriate and looking at where that can be applied to our warship construction, obviously within the constraints of our military requirements.

If I can change environments slightly, our program for our new submarine buy has been done on a prime contractorship basis, which we think maximizes the opportunity for cost efficiencies to be secured.

Mr. Art Hanger: It appears that you have an ongoing program where I believe there's another issue of procurement. You're looking at twelve new destroyers for your air defence. That is an industry in itself and it would be constantly churning out military product.

Mr. John Taylor: You're absolutely right. We have a future requirement for a program that we are calling the Type 45, which is in the early stages of acquisition. It's interesting; we have just rolled out the integrated project team that's running that program.

Inevitably, we are expecting our IPTs to work on tight budgets and to meet those budgets, and that particular project is no different from that point of view.

Mr. Art Hanger: That's interesting. Thank you.

Ms. Elsie Wayne: Once we have our shipbuilding policy, we'll build them all right here in Canada for you cheaper than—

The Chairman: That's true. St. John—

Ms. Elsie Wayne: Just wait for the national shipbuilding policy.

The Chairman: We'll go to Mr. Proud now.

Mr. George Proud (Hillsborough, Lib.): Thank you.

Welcome, gentlemen. It's certainly good to have you here today and to listen to the new process you've brought into being. We've been grappling with this for several months now and I don't know if we've come to conclusions or are more confused than when we started. It certainly was good to hear your interjection today.

I just want to follow up on a question Mr. Hanger was asking a while ago about how reliant the United Kingdom is on imports for its defence procurement initiatives. Have changes under the smart procurement focused at all on promoting more effective use of the British industrial base to promote a self-sufficient, autonomous defence industry within the U.K.? If yes, how so and has this been successful?

Mr. John Taylor: That again is a very interesting question. As I said in response to the earlier question, we in the U.K. wish to tap into the global defence industrial base because we very much recognize that we are not in the position of being able to afford to develop everything ourselves.

• 1700

When it comes to our national procurements, we certainly see overseas firms being represented in the U.K. I think that has generally been the case in the past; when we procure offshore, we do start to get a presence. Again, it is part of the process to encourage industrial cooperation and to encourage international groupings.

I think the U.K. government does want to see more restructuring in the defence industrial base, particularly in the European context. The pace of change from a restructuring point of view has perhaps not been as rapid as it has been on this side of the Atlantic. I think the move under smart procurement to engender a more engaging relationship between industry and MOD will help in its overall competitiveness.

That said, I don't believe one of the objectives of smart procurement is to promote a more effective use of the U.K. industrial base per se, because of our overall policy of procuring where we believe we can get best value for money. That was not one of the underpinning reasons. Again, that said, our defence review fully reflects the importance our government attaches to having a healthy industrial base from which to procure our defence goods both in the U.K. and in Europe.

We are approaching all this very much from the point of view of putting the emphasis on getting value and on through life cost. That is what we have to do to satisfy our taxpayers in the U.K.

Mr. George Proud: Is there an intention to build a bigger organization with yourselves and France and Germany and other countries, to have a larger group involved in procurement?

Mr. John Taylor: There is certainly an initiative, which has been going on for some time now, to create an organization that can maximize the efficiency of procurement when we are working collaboratively with our European partners. That organization is known as OCCAR, as I'm sure many of you have heard. I think our role in OCCAR is very much driven from the point of view that historically, when collaborative projects have been developed, the tendency has been to create a bespoke organization to manage that project. We've had a number of different project groups, international project groups, set up on an as needed basis.

I think the motive for this multinational organization, OCCAR, is a good one. It does give us the ability to learn from experience in the collaborative context and to use that organization where appropriate for undertaking procurement on behalf of governments where there is that common requirement.

What is encouraging from my perspective is that OCCAR seems receptive to learning about the sort of initiatives we've put in place in the U.K., which hopefully means they will take on best practice as far as their business is concerned.

Mr. George Proud: At the end of the video, Lord Robertson said if we put these processes in we'll get equipment out faster, we'll get it better, and we'll get it cheaper. In your opinion, is smart procurement working to this end? I know you're in your infancy, but is it shelling up that way?

Mr. John Taylor: As I indicated earlier, the initial assessment and evaluation we've done suggests that we're on track to realize the overall SDR savings we identified.

The indications we have on the improvements in schedule, in time, are a bit slower in coming. As I said, we've only been at this for about nine months or so in terms of real programs running, but already we're starting to see some positive signs. We're seeing the approval cycle times shrink for new projects, which indicates that the new processes are really starting to work in a more streamlined way as people get used to them.

I can give you one very concrete example. Our Challenger 2 tank program is one that is described in this year's white paper on defence. This is one where there was some interest because of the situation in Europe earlier this year, where it would seem to be beneficial to bring forward the operational readiness date for the Challenger 2 tank, despite the fact that there were only some nine months to go before the tank was due to be delivered.

• 1705

As a result of very close work between the integrated project team and the prime contractor, Vickers, that advancement in operational readiness date was achieved. So that's one concrete example, and there are a number of others that we are trying to capture.

Mr. George Proud: Thank you.

The Chairman: We do have a few more minutes, so I will come back to Mrs. Wayne.

Mrs. Elsie Wayne: Have you been dialoguing with people from our government about what we are proposing to do? If so, could you just tell me how you see the process in place here and if you think we are going to meet the needs of our armed forces here with the programs we have in place?

Mr. John Taylor: Mr. Chairman, I hope you'll forgive me if I don't comment explicitly on what is happening within the Canadian defence environment, mainly because it's really only as a result of your invitation here that I've had a firsthand opportunity to begin to get a better insight into what's happening in the Canadian environment.

I think all I would say is that as a result of the discussions I had within the department this morning, there are a lot of parallels. I think the drivers are very much the same. What I can say is that as a result of the discussions I had this morning with my opposite number in your department, we have agreed to continue that dialogue to learn from each other's experience.

I think that builds very much on the exchange that was established back in the fall of last year when our chief of defence procurement met with your assistant deputy minister for materiel. So we've got the links in place there.

Mrs. Elsie Wayne: That's good because there's strong support on both sides, all around this room here, with regard to the need for procurement for our armed forces. There is no question about that.

The Chairman: More money.

Mrs. Elsie Wayne: Yes, that's it, more money. We just have to commit.

Mr. Chairman, we should have sent him to talk to Paul Martin, our Minister of Finance.

The Chairman: Thanks, Mrs. Wayne.

Well answered, Mr. Taylor. Mrs. Wayne is so pleasant, when she goes fishing and smiles, the fish jump up on the hooks. But you were very careful.

Now we come to the government side. Are there any other questions? Seeing none, I know Mr. Hanger has another one.

Mr. Art Hanger: Yes, a couple of quick ones actually. How often does the British government conduct in-depth defence reviews? Out of that, what would be the lifespan of a long-range plan?

Mr. John Taylor: I think it's very difficult to say how often a government will conduct a defence review because I don't think there is any set pattern. I don't think there is any sort of pre-scripted time scale for it. In my sense, governments will take a decision as and when they judge it is needed.

I can provide an answer to your second question, I think. In terms of the defence review that we completed and reported in 1998, that took about a 2015 time horizon in terms of how far the forward look was taken.

In terms of our own internal processes, as I mentioned, our equipment plan looks at 10 years, but interestingly, I think the way our new capability customer is projecting the future, he's actually looking further out than that in order to get a feel for what might be needed perhaps 15 years out. So those are the time lines we work to.

• 1710

The Chairman: Mr. Proud and Mr. Bertrand, and we have to have Mr. Taylor out of here in about five minutes.

Mr. George Proud: Just a quick question. You mentioned earlier the number of government departments involved in the process. Since your smart program has come into play, are there more or fewer government departments involved, or is it the same? In Canada we have several.

Mr. John Taylor: In essence the overall position hasn't changed. Within the ministry of defence all the acquisition functions, if you like, needed to deliver equipment capability are inherent to the ministry of defence. As I say, it's the treasury and our department of trade and industry that are the two other key interested parties.

As we've taken the smart procurement initiative forward, we have sought to engage these two departments as stakeholders in the overall process so that they could understand what we were trying to achieve and so that we could take on board any specific points they may have had in terms of their involvement in the overall process. So far that has proved an effective way of doing business. So I think the short answer to your question is no fundamental change.

The Chairman: Monsieur Bertrand, the last question goes to you.

[Translation]

Mr. Robert Bertrand: Thank you very much, Mr. Chairman. I have one last question for Mr. Taylor.

As you know, our committee must submit its report in the coming weeks. I found your book very interesting. Since we are about to undertake changes, I wonder whether you have any advice to give us in order to facilitate our acquisition process. What have you learned? What advice can you give us?

[English]

Mr. John Taylor: I think it would be quite difficult in the few short minutes that are left for me to give you a comprehensive answer to that question. All I would do is perhaps just highlight the fact that our acquisition handbook, which you have a copy of, coupled with our video, which you have seen, encapsulates all the essential principles that we believe, at least in the U.K. environment, are the right way of going about business.

I think if there is one key point that I would highlight that we think has been vitally important in our change program, it is getting a real clarity of focus on responsibilities and authority, because I think it is that which really does allow you to identify who it is in the organization who really has the responsibility for delivering the front-line equipment capability, which after all I believe is what it's all about.

The Chairman: Thank you.

Thank you, Mr. Bertrand.

Gentlemen, I want to thank you very much for being here today. Mr. Taylor, I know you made a very special effort to be here. We thank you very much for sharing your expertise.

I'm with Mr. Proud. We're coming to the end, yet we still feel we have much to learn. You advanced our education considerably today. I want to thank you all very much and indicate that we've had nothing but very good cooperation from Sir Anthony Goodenough, the British High Commissioner, and Deputy High Commissioner Richard Codrington, and of course Brigadier Springfield has been very available both to me as chair and to the committee in answering our questions. I'd like to press on with that availability or presume on it a bit more and say that our researchers might, if it's okay with you, Brigadier Springfield, be in touch with you to follow up in a little more depth on some of the points we didn't have time to get into even more.

Thank you all very much for being here. We appreciate your assistance.

Mr. John Taylor: Thank you very much.

The Chairman: We certainly hope to take up your offer to come to London at some point. We're trying. It's our rules that hold us up sometimes.

Thank you all very much.

Colleagues, just before you leave, because the bells haven't begun, we have a couple of matters to deal with.

• 1715

We'll excuse our witnesses. Thank you again.

There are a couple of things. I'm going to go to Mr. Hanger in a second. I think that next week, probably on Wednesday, we'll need to have a steering committee meeting for a few minutes. We only have a couple more weeks of witnesses on this topic, Mr. Clerk, and then we're going to look at what we're going to want to go on to.

I've almost given up on asking the clerk to look at trips, because the reality is—and I'm not singling out anybody—that if it's not one party for one trip, it has been another party for another trip. We haven't been able to go on these trips. Anyway, we'd like to arrange a trip that would include London and possibly Bosnia and Kosovo as well. I don't know that the mood right now is right to do that, but the clerk has that under advisement anyway.

Next week the clerk will be in touch with each party. We need to take a few minutes to look at where we want to go, as our staff will soon be taking all of this information and coming up with a draft report for us.

An hon. member: That's on procurement.

The Chairman: Yes. We're almost done with witnesses. We just have two or three more sessions. Is that right, Eugene?

The Clerk of the Committee: Yes.

The Chairman: So that's the first point.

I'm going to go to Art, and then I'm going to give everybody else a chance to raise anything you want to before the bells ring. Art, do you have something you wish to raise?

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

I was just reflecting deeply on Mr. O'Reilly's request that the letter he received via yourself, Mr. Chairman, be distributed among the members here. Also, was it a copy of the evidence that you were going to submit along with that?

The Chairman: Yes, the relevant part of the evidence.

Mr. Art Hanger: I would appreciate it if a copy of the evidence for the whole session was delivered.

The Chairman: Okay.

Mr. Art Hanger: This is just to ensure that the committee will get a full flavour of what went on during that meeting.

The Chairman: Sure. It's on the Internet, and the clerk will give you the information so that you can access it.

I can tell you very quickly that the Auditor General wrote to me and indicated some concern about the tone of the questions Mr. O'Reilly had raised. I wrote him back saying no doubt about it, there were aggressive questions asked by Mr. O'Reilly and others, as I've often done and as other members have often done at various committees. I reiterated to him that I felt that at no time did I as chair consider that to be an ad hominem attack, an attack on a person, that he was probing expertise. His questions were valid at that point, in my judgment. That was still my judgment some weeks later.

I assured him that he'd always be welcome here. We look forward to future sessions, where no doubt he'll have aggressive questions from both sides. But at any time I'm in the chair, I will not let any member, government side or opposition side, get into what I consider an ad hominem attack. It's a judgment call.

My judgment was that there were aggressive questions but not of what is called an ad hominem nature, and I stand on that judgment.

So there you are. It's available. The meeting in question is number 12, Tuesday, December 14. We'll circulate the information Mr. O'Reilly has asked to be circulated, so you'll all be apprised of the situation.

The letter to me from the Auditor General indicated that copies were sent to several people, including, I think, Mr. Hanger. It included Mr. O'Reilly's name, but Mr. O'Reilly didn't receive his copy.

Mr. Art Hanger: I didn't receive one either.

The Chairman: Did you not?

Mr. Art Hanger: At least I haven't received it thus far. Maybe it's in my pile of mail.

Mrs. Elsie Wayne: What's the date, Mr. Chairman?

The Chairman: I'm sorry, I was mistaken, Art. It copied Mr. Hart, Mr. Pratt, Mr. O'Reilly, and Mr. Morawski. Mr. O'Reilly didn't receive his copy, so I forwarded him one. So everybody will have a copy.

Quite frankly, I don't know what the problem is. I have no intention of assuring anybody who comes before this committee that they're not going to have aggressive questions from any party here. As chairman I have to try to be neutral and to keep the thing on topic. There are some questions I would have loved to have had answers to today, but they weren't on order.

We're pretty respectful here. John's questions were aggressive, but in my judgment as a chairman—and I'm not new at chairing these kinds of meetings—they did not go over the bounds of being a personal, ad hominem attack. So that's that.

Is there anything else?

We'll see you Thursday morning at nine.

The meeting is adjourned.