feat. David Perry

Standing Senate Committee on National Security and Defence
February 1, 2016

VIDEO

OTTAWA, Monday, February 1, 2016

The Standing Senate Committee on National Security and Defence met this day at 2 p.m. to examine and report on Canada's national security and defence policies, practices, circumstances and capabilities.

Senator Daniel Lang (Chair) in the chair.

[English]

The Chair: Colleagues, welcome to this meeting of the Standing Senate Committee on National Security and Defence. Before we begin, I would like to introduce the people around the table. My name is Senator Dan Lang, for Yukon. To my left is Adam Thompson, Clerk of the Committee. I would like to invite each senator to introduce themselves and state the region they represent, starting with the deputy chair.

Senator Day: Senator Joseph Day from Hampton, Kennebecasis and Belleisle, New Brunswick.

[Translation]

Senator Dagenais: I am Senator Jean-Guy Dagenais from Quebec. I am from the Victoria district, in the Montreal region.

Senator Carignan: I am Senator Claude Carignan. I am the Leader of the Opposition in the Senate, and I also represent Quebec. My Senate riding is in the northern suburbs, in the area of Thérèse-De Blainville and Saint- Eustache, probably one of the most beautiful cities in Quebec.

[English]

Senator Beyak: Senator Lynn Beyak from Dryden, Ontario.

Senator White: Vern White, Ontario.

The Chair: Before I welcome our guests, I would like to thank my colleagues once again for selecting me again to serve as the chair of this committee. I want to make a special welcome to Senator Day, who has been elected as the deputy chair. He's been on this committee since 2001 and is one of the deans of this committee. I'm sure that we will continue to get great insight and knowledge on the issues that are before this committee over the course of the next number of years.

Once again, Senator Day, I'm looking forward to working with you as deputy chair in the same manner of cooperation that I worked with the previous deputy chairs, Senator Roméo Dallaire and Senator Grant Mitchell.

Colleagues, I also would like to note that Senator Dagenais has agreed to serve as the third member of the steering committee.

Also, I give a special welcome to the newest member of the committee, Senator Claude Carignan, who was the Leader of the Government in the last Parliament and presently the Leader of the Opposition in the Senate.

Senators, welcome, and I'm looking forward to the forthcoming deliberations over the next number of years.

Since we last met, the committee completed and tabled its interim report entitled Countering the Terrorist Threat in Canada. This report was tabled on July 18, 2015 and is a strong blueprint to address the ideological and political challenges that radicalization and terrorism pose in Canada today.

As we go forward, this committee will continue to strive to address issues that are important to the safety and security of Canadians. We will build on our previous studies and make all efforts to do so in a bipartisan matter, putting Canada first.

Colleagues, I'm also pleased that we have reconstituted the Veterans Affairs Subcommittee, which will include Senator Day as chairman, Senator Dagenais, Senator White, Senator Mitchell and me.

Today, colleagues, we're scheduled to meet for three hours. We will hear from defence policy experts in the first hour. We will then go in camera for hours two and three to discuss future business.

For the record, I would like to note that two studies adopted by the Senate — that were presented this past week — were about services and benefits to veterans and operational stress injuries and PTSD. They were agreed to in the Senate. Pursuant to last week's agreement, we have deemed them be referred directly to the Subcommittee on Veterans Affairs. I just wanted that noted for the record from a procedural point of view.

I would like to ask our deputy chair, Senator Day, if he wishes to offer some thoughts before we welcome the witnesses.

Senator Day: Thank you very much, Mr. Chair. I appreciate your comments.

I've served on this committee since I was appointed to the Senate in 2001, and that was the year this committee was created. One of the advocates for the creation of the committee is another member of the committee who couldn't be here today, Senator Kenny. He sends his regrets. Senator Kenny is a senator from Ontario.

Senator Mitchell is another senator who was on this committee, and the former deputy chair of the committee. He is unable to be here at the front end of the committee but hopes to join us before the committee is concluded.

Finally, I think it's important to mention that the terrorism report was not a unanimous report of this committee but was filed pursuant to approval of the Senate as a whole.

The Chair: Thank you very much, senator.

Now we'll get on with welcoming our guests today. Joining us today is Ms. Julie Lindhout, President of the NATO Association of Canada; and Mr. David Perry, Senior Analyst at the Canadian Global Affairs Institute.

Neither Ms. Lindhout nor Mr. Perry is a stranger to Canadians and those who pay attention to issues of defence. We know how hard you work in respect to ensuring that we have a public conversation on an ongoing basis regarding questions of defence, specifically NATO.

I'm pleased to welcome you both today. In inviting you to make an opening statement, I will begin by asking Ms. Lindhout if she wants to proceed, and then Mr. Perry.

Julie Lindhout, President, NATO Association of Canada: Thank you very much, Senator Lang. It's a pleasure to be here and to know that some of our thoughts are going to be seriously considered.

In the late fall of 2015, six young analysts of the NATO Association of Canada did very thorough research of Canadian defence policy and prepared recommendations for the new government. The complete document can be accessed on our website www.natoassociation.ca.

I want to stress there are young people who are interested in Canadian defence policy and who do stay on top of the latest defence and security issues. Their contributions can be accessed continually on our website.

There are three key messages in their paper that I want to summarize today. They are not in priority order, and I can provide more detail on any of them.

The first message is that Canada is a trading nation. Canada produces far more goods and services than its population can consume, but its economy depends on markets for all its goods and services. Therefore, it depends on global security for its markets and secure routes to its markets.

Therefore, it needs to work with its allies in NATO, NORAD and the UN in an interoperable way to ensure that those markets remain accessible by enhancing global security and by ensuring that the routes to those markets remain accessible and safe. That may require Canada, from time to time, to go outside its borders to help ensure that other borders will be safe enough to ensure that Canadian companies can trade abroad.

The second point is that given our extensive geography and sparse population, almost everything that Canada needs for its expeditionary forces is the same thing it needs to secure its own boundaries and respond to its own crises and surveillance requirements.

We need search and rescue capabilities and transport capabilities into the high Arctic, and we need to be able to project power on our coastal boundaries in the Arctic and elsewhere. Our Armed Forces are our best resources to respond to any crises anywhere in our vast country.

Finally, we need to understand that defence spending is not in opposition to spending in other areas. This is something that our young people feel very strongly about. It is not a zero-sum game. The Department of National Defence provides both direct and indirect jobs, and they are good jobs, with extensive training programs that will prepare participants well for any job opportunities.

The defence industry provides good jobs. Fr example, the infrastructure requirements in the Arctic are equally beneficial to the military and the civilian requirements. A good deep sea port and a good all-weather road will provide better access to goods, services and markets for both the military and the civilian population. They are shovel-ready, only waiting for the federal go-ahead.

I would like to leave my remarks at this point. I would be happy to elaborate on any of these points and answer questions.

The Chair: Thank you very much, Ms. Lindhout.

Mr. Perry, please.

David Perry, Senior Analyst, Canadian Global Affairs Institute, as an individual: Thank you very much for the invitation to speak to you today.

I wanted to start out briefly by introducing my organization since I think I'm the first of my colleagues to appear before you under our new name. I'm a senior analyst with the Canadian Global Affairs Institute, which until this summer was the Canadian Defence and Foreign Affairs Institute. We remain an independent, non-partisan think tank based in Calgary, but our new name better reflects our activities which encourage strong Canadian policies across the full spectrum of Canada's international activities, although I offer these comments to you as an individual.

Your committee is resuming hearings at a critical time for the Canadian military, as the government has committed to a defence policy review by the end of the year. A fully open and transparent review of our defence policy has not been conducted for at least two decades, since the process that resulted in the 1994 White Paper on Defence. I would note for the committee that during that previous process in the mid-1990s, a special joint committee of Parliament was struck which played an invaluable role in engaging in a dialogue about defence across the country and which produced a high-quality report that had many recommendations that found very close similarities, if not exact text, reflected in the actual white paper itself.

A comparable parliamentary effort at this point is well worth your consideration. That's particularly so given the gap that exists between the current defence policy, the Canada First Defence Strategy, and the defence budget available to actually implement that strategy. I think that a review is particularly needed in the context of that gap between commitments and capabilities and the current fiscal circumstances that this current government is inheriting.

As the government turns its attention to this review, I wanted to bring two interrelated issues to the committee's attention in my opening remarks, both related to defence procurement, although I would be happy to expand into other issues that interest the committee in the question and answer portion of the meeting.

The first is that there is significant shortfall, as of right now, in the funding allocated to procure equipment for the military. The second is that we at present have a defence procurement system that over the last several years has been consistently underperforming.

On the first point, one of the most significant problems the government will need to address as it undertakes the review is reconciling a lengthy list of defence equipment projects that are presently unfunded. Looking ahead into the future, the military has assessed that delivering on the current defence policy would require well over 100 capital procurements. At present, there is roughly three times more demand for actual project funding than there is available money. That's left the capital acquisition budget short by several tens of billions of dollars, even considering the planned increase of the defence budget that the government has promised to honour. Resolving this mismatch between the demands of defence policy and the available funding must be a central focus of the defence policy review, in my opinion.

On the second point, my organization, in collaboration with the School of Public Policy and the Centre for Military and Strategic Studies at the University of Calgary, recently published a 2015 status report on major defence equipment procurements. This study looked comprehensively at all the major Crown projects that the Department of National Defence reports on through the estimates, as well as those potential future projects that it has discussed in its Defence Acquisition Guide.

That study showed that there has been some meaningful real progress on several major procurement files. Most notably, to my mind, as we enter into the massive National Shipbuilding Procurement Strategy, the navy's Halifax- Class Modernization / Frigate Life Extension project has been remarkably successful, given its $4.5 billion budget and the project's significant degree of complexity.

Beyond the few positive examples, however, the broader story is one of persistent delays. Every single one of the 23 major Crown projects examined in detail in this study has been delayed. Of all the potential projects listed in the Defence Acquisition Guide, 3 per cent of those are early relative to the earliest posted indicators, only 34 per cent are on schedule and the remaining 63 per cent are late.

The cumulative result of all of this delay, particularly since 2007, is that a total of roughly $9 billion in the funding allocated to the military to buy new equipment has gone unused at year's end. Over the same time period, that has translated on an annual basis into an average of a quarter of the funding made available to procure new equipment going unused.

Particularly troubling for fiscal year 2014-15, that share actually rose and became worse, rising to 31 per cent of the available funding, or $1.5 billion going unspent as intended at year's end.

Because of this inability to actually spend the funding that's made available, the share of the defence budget devoted to acquiring new capital equipment and infrastructure has dropped significantly. It's now at roughly 12 per cent, which is the lowest level share of the defence budget allocated to acquiring capital equipment and infrastructure since the late 1970s.

Remarkably, this situation has actually worsened despite a recent attempt to improve it. This Friday, February 5, will mark the two-year anniversary of the Defence Procurement Strategy, an effort designed to leverage defence purchases for domestic economic benefit, ensure the timely delivery of the right equipment and streamline the procurement process.

So far, significant changes have been made to Canada's industrial offset program, which have begun to start delivering on a better leveraging of that economic impact. Other reforms have been enacted that may, in time, ensure that the right equipment delivery is undertaken.

To the best of my knowledge, however, after two years, the effort to streamline the procurement process across government has not yet produced any tangible results. To be blunt, I hope the new government finds this lack of progress over two years unacceptable.

The current government committed in both its platform and ministerial mandate letters to improving upon this situation, and I think this attention is much warranted and deserved. At present, the defence procurement system is trying to buy more equipment than DND has the money to afford, lacks the required human resources and capacity to deliver on it, requires decision making for virtually everything at the highest levels of government, and all of this is underpinned by processes designed to disproportionately value fairness, transparency and fiscal probity at the expense of actually delivering equipment to the military.

With that in mind, I would offer the committee the following recommendations.

First, the defence policy review should seek to resolve the mismatch between funding and capabilities in the defence plan and prioritize planned defence acquisitions.

Second, there's a need to increase the capacity of the procurement workforce, with a particular focus on the Materiel Group at the Department of National Defence and the national shipbuilding and defence procurement strategy secretariats at Public Works.

Third, the government should produce and implement a plan to streamline the defence procurement process across government by no later than the start of next fiscal year, April 1, 2016.

Finally, as part of wider efforts to measure performance and to track results across government, the government should institute a system for tracking progress on defence procurement that focuses on the actual delivery of military equipment as the key deliverable.

Thank you very much, and I'll be happy to take your questions.

The Chair: Thank you very much.

We will now go to questions, and I will start with Senator Dagenais.

[Translation]

Senator Dagenais: Thank you, Mr. Chair. My first question is for Mr. Perry.

One of the things you talked about is the budget. We know that the current government wants to propose a review of the defence system. In what way do you think the new system will be different from the exercises we usually do?

Here is my second question. If things must be done differently, do you have any recommendations for the government on what exercises should be carried out? From the government's perspective, should the system be reviewed?

[English]

Mr. Perry: In terms of what will change, I don't know. My hope is that the government is approaching the review with a genuinely open mind, which would include considering the fact that given extant policy and the fact that I think large portions of that policy are unlikely to change because there are certain defence requirements such as defending North America, and that any government of any political stripe is required to do so. I hope that the government is going to be open to the possibility of potentially increasing the resources allocated to defence.

Without an infusion of funding, particularly into the capital budget, the current plans are simply unfeasible, and portions of them will not be able to actually go ahead.

Without added funding, another option would be to reallocate funds within the existing defence budget, potentially by looking at different levels of staffing for regular reserve forces, civilians and contractors, and making adjustments to the size of the personnel component or expenditures on operations and maintenance.

The other possibility is adjusting some of the long-term plans and providing an indication to the military about which parts of their plans going forward they should keep and which ones are simply unaffordable in the current circumstances.

I really only see some combination of three possibilities: more money, spending it differently or more efficiently, or directing that the military make some tough choices in particular areas.

The second question was related to military exercises, if I understood. There are a number of different possibilities that I know of. In some instances, if this is what you're talking about, they're doing more simulation instead of actual physical exercises, which can have potential economies over the long term.

The trouble is that a lot of the different means of finding efficiencies that the Department of National Defence has examined require up-front investments. The difficulty is that spending more money to acquire simulators is competing with other very significant and pressing demands over the long term to acquire other types of capital equipment.

There are other ways of doing it. Almost all of them require additional expenditure up front to realize benefits over the long term.

[Translation]

Senator Carignan: Mr. Perry, you talked about a gap between the funding and the expenditures. I noticed that $9 billion remained unspent. Departments have budgets, but it seems they are having trouble spending the money. People are always asking for more money, yet they have difficulty spending the money they already have. How can we improve the effectiveness of current spending?

I am struck by some of the figures. You say that 63 per cent of acquisition or infrastructure projects are late. That is a significant proportion. The envelope set aside for human resources, soldiers, the reserve and job creation is one thing, and equipment and infrastructure are another. How can we improve the way things are done?

[English]

Mr. Perry: I will address your last question first in terms of the right kind of allocation. I actually think that the division of rough apportionment between the different types of spending outlined in the Canada First Defence Strategy was a pretty sensible one, with roughly half of the money going towards personnel, divvied up within that in potentially different ways, and then about 20 per cent to capital investment long term. I think that's a good allocation, and looking in detail at the amount of money given to National Defence and assigned to them to potentially spend, that's roughly where that allocation has been. But the issue is in terms of actually spending it.

There are a number of different impediments. In some cases, to be fair to the government, there have been issues where companies that were contracted have been unable, for various reasons, to deliver equipment on schedule. That's part of the reason why not all of those funds have been used.

More broadly, there are a number of different systemic issues. In the mid-2000s, first the Martin government and then Prime Minister Harper provided a large sum of money to the military to undertake recapitalization, which was much required because after the Cold War ended we went through a period where we didn't buy a lot of new equipment. In the mid-2000s, large sums of money were assigned to re-equip the Armed Forces, but the corresponding changes to actually enable the acquisition workforce to deliver on that weren't put in place.

So after the 1990s, when we weren't buying a lot of equipment, the staffing levels at Industry Canada, which used to be Public Works and Government Services Canada, and the branch of National Defence which dealt with procurement, all of those departments with expertise in defence acquisitions had their staff reduced quite significantly. Those workforces have really not been rebuilt since the mid-1990s. Then they had a very large infusion of money, with a lot of plans and policy coverage and direction to get on with recapitalizing the military, but we still aren't in a position where the human capacity to deliver on a lot of this has been rebuilt.

The Materiel Group in National Defence is currently in the process of trying to hire new staff, but they're facing a lot of difficulty in doing so because the human resource systems in the Government of Canada are also cumbersome and take a long time.

So as part of that, there has literally been an effort to acquire more projects than there is money for. Given the systems of government that procurements actually have to work their way through, there's been an attempt on a yearly basis to go out and purchase far more equipment that can ever realistically acquire Treasury Board approval or get a memorandum to cabinet approved. So there's been an effort to essentially do more than the system has the capacity to deliver on.

I think if the government does one thing, trying to better align and prioritize what is actually important and achievable would be the number one recommendation I would make.

Senator Beyak: Thank you very much, Mr. Perry, for an excellent presentation. You've just answered most of my questions in your responses to Senator Dagenais and Senator Carignan and in your presentation.

You said the government's top priority should be prioritizing, so I wonder if you could tell me what your top three priorities would be if you were doing that.

Mr. Perry: Sure, I will do that, but I first want to say that I think this should be in line with the defence policy review. That's the important thing. However the government sees the world and the role for National Defence in it, that should ultimately be what drives the prioritization of these different projects, not what I or any other analysts think but what's important to them, what role they think the military should play in the future.

Having said that, my number one priority would be the Canadian Surface Combatant project, which is going to re- equip the surface fleet for the navy.

Number two would be the Joint Support Ship project to acquire the capability to refuel our navy at sea, as well as off our own coasts to give us independence of action.

Number three would be replacing our fighter aircraft with a modern capability.

Senator Beyak: Thank you very much.

The Chair: I would just like to make this comment to our other witness. It's not as if you're not going to be asked any questions, but I think the idea is to stay on one topic and then move to another. It's not as if you're being ignored. I guess what I'm saying is be prepared.

Senator White: And with that, I'd like to ask you a question, if I may. I'm a big believer in new chances, but I would like to talk about Iran, actually.

As we see a move towards normalizing relations with Iran, not only from Canada but from other countries, I wonder if you could share your perspective on this new revelation that Iran is our friend. You're not in camera, but pretend you are.

Ms. Lindhout: I think we really need to be very cautious in dealing with Iran, because saying that Iran is a friend might even be going a little too far.

Iran has its own ambitions for the region, and therefore I think it was of interest to them to try and normalize relations so they can realize those ambitions. But in many ways, it hasn't changed very much. In practice it hasn't changed. We are still hearing of human rights infractions on a regular basis.

I think that's an area where we need to continue to be very observant and to work with our partners, our allies, to be able to jump in when necessary.

Senator White: Are we doing enough to make sure we're keeping a close eye on what Iran is doing as we're moving forward, or have we forgotten the past? I'm concerned right now about whether we are doing enough to keep an eye on Iran as we move through this new relationship.

Ms. Lindhout: I think that's part of what Mr. Perry was talking about in developing the policy, having a look at what exactly it is we need to do. Keeping a global eye on the world and on global affairs has got to be part of that whole policy. How we do that is through interoperability with our allies; therefore, we need to work closely with them so they will feel comfortable in sharing information with us and we will feel comfortable in sharing information with them. I think any individual country these days cannot go it alone on things like that.

Senator White: Thank you.

Mr. Perry, regardless of what country I talk to about procurement when it comes to their National Defence equivalent, the word "procurement'' is always the problem. Specific to a solution, do you see an opportunity either for someone other than just the government or just the minister overseeing that procurement? Is there an opportunity for us to be doing procurement in a different way than the way we've done it for the last decade, regardless of the government in power? Because it doesn't matter who is in power. The problem remains, which tells me that it's not actually a government problem; it's a bureaucratic problem. What's the solution to that, other than you buying it?

Mr. Perry: There are no magic bullets and you can't point to any jurisdiction anywhere in the world where acquiring large, complicated projects of this nature goes flawlessly. That shouldn't be the ideal.

The problem that Canada has had historically and the problem that most of our allies and partners have is they don't have enough money to buy things. We have that problem.

We also have a different problem where we can't use the money that is there. That's a unique set of circumstances which has emerged in this country roughly since 2006 and 2007. Historically, Defence had a chronic shortage of funding. It still has that issue, but more recently it has had a chronic inability to use that.

I would encourage the government to look at different institutional models, but to do it with a mind open to taking the best of different systems and not go into the exercise thinking there's a magic solution. Other allies, in Great Britain and Australia, have recently gone through significant changes that haven't panned out the way they wanted it to. The United States is on its thirty-second round of defence procurement reform and they still have a system where things don't work flawlessly. That doesn't mean you can't learn and take lessons from other people.

Senator White: Thank you very much.

Senator Day: I'll begin with Ms. Lindhout. We are aware that the chairman of your organization is former Senator Segal, and we wish him well in his new capacity as chair of your board.

I think it would be helpful for those watching, in particular, to understand how the NATO Association of Canada relates to the NATO associations in other NATO countries.

Ms. Lindhout: Thank you. I welcome the opportunity to clarify that.

When the North Atlantic Treaty was first signed, it was agreed by the countries signing it that NATO would not have to promote or advertise itself but that it was the job of the respective governments of those countries to organize some way of informing their public. So almost all the then members of NATO set up an organization like ours — some were called Atlantic councils, the Atlantic Council of the U.S., the Atlantic Council of the U.K., and originally our name was also the Atlantic Council of Canada. However, in the past 20 years, that has led to some confusion as people wonder why we're located in Toronto rather than Halifax and whether we have anything to do with shipping and fishing.

Last year, when it was necessary for all non-governmental charitable organizations to get articles of continuance under the new legislation, we took the opportunity to change the name from the Atlantic Council of Canada to the NATO Association of Canada, and NATO gave us permission to use that name.

Our role is to inform Canadians about defence and security issues, particularly as it relates to NATO activities and Canada's role in NATO.

There is an umbrella organization based in Brussels called the Atlantic Treaty Association that we are all members of. We meet once or twice a year — once as a general assembly and once as a council meeting where the heads of the various associations meet — and we are briefed by NATO and other experts on things that are going on.

Senator Day: Thank you. That's helpful. You're a not-for-profit?

Ms. Lindhout: That's right. We're a not-for-profit charitable organization. We do not have a standing grant from the government, although we did initially, but not anymore.

Senator Day: That was going to be my next question. So you're independent of government in terms of funding?

Ms. Lindhout: That's right.

Senator Day: Just so the public knows, 28 different nations are members of NATO and, primarily, an executive of departments of defence in each of the countries meets on a regular basis?

Ms. Lindhout: Yes. One development has occurred that is very important since the fall of the Soviet Union. NATO has also entered into Partnership for Peace agreements with a number of the former Soviet countries and a few countries that are not members of NATO. Some have no intention of becoming members of NATO and others hope to be in the accession plan. So our association, the Atlantic Treaty Association, actually has 39 members.

Senator Day: Good. That's helpful to know.

I'm sure you're aware, but maybe not our audience, that there's also a NATO Parliamentary Association. We meet on a regular basis and parallel the executive from a parliamentary lawmakers' point of view.

Ms. Lindhout: Yes. I think it's a very valuable organization.

The past president of the Atlantic Treaty Association at one point was the president of the NATO parliamentarians association, Dr. Karl Lamers, from Germany. I have attended several of the meetings and we do try to work very closely together. It's very helpful.

Senator Day: Good.

The Chair: Senator Day, I'm giving you some latitude. I hope you realize that.

Senator Day: I appreciate it.

The Chair: I gave it to Senator White, so I thought it would only be appropriate.

Senator Day: I'll see if I can double his time.

The Chair: I have no doubt that you can, but the chair won't allow that.

Senator Day: I wouldn't presume to do that, but I do appreciate Mr. Perry's information.

Your comment about increasing the Department of National Defence's body or group that deals with procurement and matériel is one area where you feel there needs to be some work done. About two or three years ago, National Defence themselves did a study to determine what the problem was and why they were not able to move as quickly. Are you aware of any outside studies that determine why money that had been allocated and projects that had been advertised with great fanfare hadn't moved forward, especially in the last few years?

Mr. Perry: There have been several. Part of this was done as part of the work that led to the launch of the Defence Procurement Strategy in 2014. Several different studies were done around that time and some by CADSI. Since then, a number of studies have been done over the last three or four years looking at different parts of this.

Senator Day: The Defence Procurement Strategy is outside of National Defence and it's for very large purchases, as I understand it.

Mr. Perry: That's correct. It's geared primarily towards the larger purchases, but it's not simply the largest ones, the major Crowns, those over the $100 million threshold. It's oriented towards different procurement. The lowest threshold is at about the $20 million level.

Senator Day: Do you have any comment with respect to the application of the offsets, trying to make sure that money is generated through other companies in Canada?

Mr. Perry: I think the intent of the change that was launched was to take an existing program of a dollar-for-dollar offset and use that in a more strategic way. They would have targeted benefits at specific portions of the Canadian defence industry in a way that would enable them to become more competitive internationally, to grow their export market in an effort to get Canadian content and Canadian parts and suppliers into global value chains. I think that was laudable.

I'm not sure the system as it has unfolded has actually gone in that direction. There have been some changes and the industrial offset portion is now an evaluated component of a response to a request for proposals, so it's actually now an evaluated component of a bid. What I think is still lacking is that there hasn't been a targeted identification of key portions of the defence industry that have the potential, with some extra assistance in this kind of way, to become more strategically viable. That component is still lacking. At the moment, I think it's somewhat unfocused in terms of its application because it applies simply to everything.

Senator Day: So we have the procurement strategy for the large ones down to $20 million, but today I read an announcement that the Department of Defence and the Materiel Group within Defence are getting an expanded authority. They've been complaining about all these contracts having to have government services involved. That was causing a terrible delay. It's going up. In 2011, the amount that Defence could spend on its own went up from 5,000 to 25,000, and that was seen to have no impact. Now it's going from 25,000 to 25 million. Do you have any comment in relation to that announcement?

Mr. Perry: I do. I think that what they're actually looking to go to, in time, is a $5 million threshold, and that's basically the amount of money that Public Service and Procurement Canada will delegate to the Department of National Defence. I think the intent behind that is very admirable. It's going to delegate to them the authority to buy the relatively low-cost items, which are relatively simple. The Department of Defence buys everything from stationery to tanks, and they spend a lot of time and effort. There has been, historically, a lot of interdepartmental effort allocated towards buying a large number of low dollar-value items, which do not represent a big share of how much money they spend but do represent a lot of time and effort to buy a large number of relatively simple and low-cost items. I think where they're moving with that would make sense, and it should eventually help improve things.

The key take-away I would suggest from that article today is that the department is getting the authority to do that. So, again, that was announced two years ago. The Department of National Defence still does not actually have that delegated authority. That's a relatively simple change to the way the procurement system works that, almost exactly 24 months after it was announced, still is not yet implemented.

Senator Day: Interesting.

I did make a mistake, and I said 25 million. It's 5 million that the Department of National Defence would have authority to spend.

Mr. Perry: Yes.

Senator Beyak: Thank you very much, Ms. Lindhout. I wonder if you could expand a little for me. You have some excellent recent publications. If I'm reading one of them accurately, you're recommending an increase to 100,000 regular and 50,000 reservists to the current Canadian Armed Forces.

A lot of Canadians watch the National Security and Defence Committee at home. Would you be able to expand a little and tell me why you believe such an increase is necessary over our current amounts of about 27,000 and 66,000?

Ms. Lindhout: Yes, I'd be happy to do that.

One of the things that the analysts did was to look very carefully at the lessons learned from recent activities. Nobody, in August of 2001, had any idea that the Canadian Armed Forces were going to be so heavily involved in combat activities as they ended up becoming involved in. They were so undermanned at that point that many soldiers went on two or three rotations without very much time in between. Some people have suggested that that may have been one of the causes of increased post-traumatic stress and so on.

So one of the points that we wanted to look at was to ensure that there be a well-equipped, well-trained force in the regular forces that is readily deployable for whatever is needed.

As far as the reserves are concerned, it is much less expensive to train a reservist than it is a regular soldier, and yet the reservists were integrated extremely well into the forces that went to the Balkans, to Afghanistan, and really did very well.

The other point is that they are a good, strong link with the community. The people stay in their own community. They have their own jobs, but it creates a good link.

Finally, a point that was reiterated several times by our young analysts, who are all looking for good jobs, is that those jobs in the military are good jobs. When we talk about employment initiatives, they might just as well be in the military. There's excellent trades training, for example, in the military, and there are all the other things, like the leadership training and so on. So it was felt strongly at both the regular level and the reserve level that increasing it to a really credible number would allow Canada to respond when necessary to both domestic situations and international situations.

[Translation]

Senator Carignan: My question is for Ms. Lindhout. Ms. Lindhout, I would like you to tell us about the evolution of the terrorism threat in Canada and about potential collaborations with our NATO allies to reduce the threat, especially when it comes to radicalization and the jihadist threat. Can you tell us what improvements you think we could make in that area?

[English]

Ms. Lindhout: Thank you. That is a very pertinent question at the moment, the whole notion of radicalization and homegrown terrorism.

I think it's very important for us to look at what some of the other countries are doing and what is successful and what is not. Apparently there's a program in the U.K. that is being quite successfully implemented — I believe it's in Birmingham, but I may be wrong about the actual location — where they have looked at connecting more with the young people who are potential candidates for radicalization and involving them more.

It's definitely a matter of sharing information. I think that has to be done internally. Our different security elements — the police, the RCMP, CSIS — all have to work more closely together to share information and also, on the international level, to share with our allies, to not only learn from them what is successful there but also to be warned by them or to warn them. I think that might go quite a ways to helping that. I don't think there is a magic solution at the moment that would really solve the whole problem, but I think we can do things that will ameliorate the situation.

Senator White: Thank you very much again, Ms. Lindhout, for your responses.

On the NATO response to Iran, are there outliers, country-wise, that are going in a different direction than what we're hearing or than what we're doing? If so, could you identify where they are going and what you think of those moves?

Ms. Lindhout: NATO is not actually responding to Iran because it's not directly on the NATO border. When they do respond, it might be a situation where, say, something were to occur to Turkey, which is a NATO member. It has no direct involvement in Iran, but it's obviously carrying a close watching brief.

The NATO Defense College, which is the policy arm of NATO, has been doing a lot of studies of the area and has been consulting with people.

Senator White: I apologize. I meant NATO whether or not NATO members are in lockstep or whether or not we have NATO members that are moving in a different direction than Canada.

Ms. Lindhout: I think that for a lot of NATO members it wasn't so much on the horizon until the refugee situation came about, and then they started looking at whether Iran one of the players. Is it stirring up problems? Is it helping? That's the issue that I think people are most concerned with right now.

[Translation]

Senator Dagenais: My question is for Ms. Lindhout. In your report, you say that the government should increase the army budget by about 2.5 per cent a year in order to, I assume, maintain the armed forces' combat capability and help them achieve their objectives. Could you explain why those increases are important and what their actual purpose should be?

[English]

Ms. Lindhout: In the first place, I think it should be used to increase the actual numbers of people in the Armed Forces. There's going to be a lot of training required. It's not only the army; it's also the navy and the air force because they're all getting new equipment and will have to be retrained. That would be an important element.

Given that Canada is such a large country, with so many of its own internal needs, I think having more Armed Forces members — for example, what happened a couple of years ago in the High Arctic when the accident occurred, the plane crash, it just so happened that the Armed Forces were there on exercises and were able to step in. However, if we had larger numbers of them we might be more able to assist in that way and be better equipped to deal with the situations that arise within Canada and situations to protect Canada's airspace.

I think one important aspect that we often forget about with regard to the Arctic is that we need to be able to project power. Everybody immediately thinks of Russia, but that's not the only reason. If we want to be able to control what happens in the Arctic, which is rather fragile, we have to be able not only to enact regulations and legislation, but we have to be able to enforce them. That, I think, will require more people power than Canada has at the moment.

[Translation]

Senator Carignan: I have a follow-up question to what Senator Dagenais asked. When you say we should have more people power, can you give us an idea of how much we should increase it by, percentage-wise?

For example, what kind of increased presence could we consider, just to protect our interests in the Arctic?

[English]

Ms. Lindhout: To give a specific number I think would be rather difficult, but almost any increase is better than what we do right now. We have to be able to go to more places at the same time and back up our excellent Ranger group there. However, they're very sparsely spread out. It's a matter of how quickly can Canada work towards increasing the numbers and then to put them on regular rotations going through the Arctic.

That's equally important also for the navy and for the air force. If anything happens in the Arctic and we're trying to run everything out of Trenton, that is a large distance, and I think it would be better to have a certain advance capability. That's also one of the reasons why one of the recommendations is to ensure that there is a runway that is long and strong enough to land the right kind of aircraft and to have the deep-sea port that will allow the ships to come in. I think that's very important as well.

Those are infrastructure things, so it's a matter of perhaps transferring infrastructure money from elsewhere to DND infrastructure building.

The Chair: Colleagues, I would like to pursue this question of the Arctic and the responsibility that we as Canadians have for the defence of the Arctic and how that relates to North America.

First, given your new mandate and new title as an organization, I'd like you to outline what your involvement will be regarding a question that is becoming more and more important to Canadians and to North America, which is the replacement of the technology in the Arctic at present for the radar systems that are in place.

Second, there is the aerospace question that was mentioned earlier in respect to a system of satellites that could be incorporated for the purposes of giving us communication, and also weather reporting. Most Canadians don't realize that we do not have a good system of weather reporting in the Arctic because of the location of the North Pole.

I would like to ask you also if you have any comments on the question of ballistic missile defence.

I know these are broad questions, but the point is that NATO and the Canadian government supports the installation of ballistic missile defence in various countries adjoining Russia, and yet Canada is not part of ballistic missile defence. We did do a very thorough study here a year and a half ago in respect to how Canada should view this and whether Canada should now be starting to participate in that.

Perhaps you have some comments in view of the fact that your mandate has obviously broadened. In commenting on these particular issues, how do you see your role?

Ms. Lindhout: We are very fiercely non-partisan in our activities and in our writing, but we do look very carefully at what might be helpful and beneficial. To complete the defence circle, if you could call it that, it would probably be very good. Certainly some of our NATO colleagues really believe that Canada should be participating in the ballistic missile defence shield, keeping in mind that that is strictly defence efforts, but it would complete the shield at the top of the country.

NATO also regularly meets, even though it doesn't feel that it has an actual role in the Arctic as such, because there are other countries, not only NATO countries, bordering the Arctic. Nevertheless, it does meet fairly regularly to talk about issues that might arise, if it is a defence problem, and tries to keep the various countries talking together about those issues.

One of the things that Senator Lang pointed out a couple of years ago was that there are real people living up there in the Arctic. It's very important for us to think of it not only as a vast space that needs to be protected but also as a place where people live who need jobs, who need to feel safe, and who need to be able to get products and get them to market.

Senator Day: Ms. Lindhout, I think we should make it clear on the record that NATO's ballistic missile shield was intended more for Iran than it was for Russia. The comment was about countries neighbouring Russia. It is Turkey and Poland, and I'm not sure if other countries are still involved in that or not.

Ms. Lindhout: It's definitely Turkey and Poland. My understanding is — and I am not a specialist in this — that it's technically impossible for those ballistic missiles to actually reach the populated areas of Russia. So it was definitely not intended for Russia; it was intended for Iran.

Senator Day: I think it's important to have that on the record.

The Chair: I think it's also important to have on the record that it's totally defensive. It's not offensive no matter where it's located. I think that has to be stated on the record. It's not for the purpose of going into any populated area. It's for the purpose of stopping a missile aimed in your direction and being able to bring it out of harm's way through technology, not unlike what's happening in Israel in respect to their rockets and the particular shield that they have in place that's been a technological advance that I think has been very beneficial to all sides of that conflict.

Mr. Perry: If I could quickly jump on your question about the North American defence infrastructure, I think that's going to have to be a key focus for the government as part of the defence review. The backbone of that, the North Warning System, was last updated in the late 1980s. It's quite old at this point. We're seeing on the other side that the Russians have put a lot of money and effort into upgrading a lot of their forces that operate over the North. So that's something we should be concerned about. The commander for NORAD certainly in public statements has indicated that he has a lot of concerns.

Making sure that we have upgrades on all the different constellations of systems to detect, observe and provide warning about potential threats in that area is something I think the government should pay a lot of attention to.

I would be supportive of ballistic missile defence if the price is right. I think your committee made an excellent report. My only question is what it would potentially cost us. We apparently had the option to opt in before without any significant financial cost. I'm not sure that's the same deal that's on the table. If it isn't, it would be a question of how much that would cost and what we could do with that money elsewhere.

The Chair: If I could make this point before Senator Day does, that was one of the caveats that we had in our recommendations, that we negotiate terms that are satisfactory, recognizing it is a new day and perhaps the terms and conditions are not the way they were before.

To put on the record what was clearly stated in that report, it's to everyone's benefit that Canada be involved, like all other aspects of NORAD, because it is a system that works. We are the only two countries in the world that share a common defence. We're very fortunate that we have the United States, but the United States is very fortunate they have us. It's a two-way street.

Are there any more questions at this point?

Senator Day: On that issue, I think it's important that that was a unanimous report of this committee. I'm glad you're aware of it, Mr. Perry.

Ms. Lindhout, you were talking to Senator Lang about your mandate. Do you consider it your mandate to lobby the government as well?

Ms. Lindhout: No, we're not a lobbying organization; we're an information-sharing organization. We try to present all aspects of a particular issue so that people can make up their own minds. From time to time we make recommendations on how we can best continue to do our share in NATO, from what we hear from colleagues, but generally speaking, no, we're not a lobbying organization.

Senator Day: If you have anything to say as a member of NATO. The executive has committed that 2 per cent of gross national product will be spent on defence, and 20 per cent of that on acquisitions. We're not anywhere near that. In fact, we're a little less than 1 per cent. We're way down in terms of NATO members. Do either of you have any comments?

Ms. Lindhout: That problem has been around since NATO was established. It was always a target to have 2 per cent of GDP spending and very few countries have ever consistently reached that. Sometimes they exceeded it when there was a really strong situation.

When the issue was raised at the Wales Summit about increasing that spending, everybody said, "Yes, it's a good thing; we should be doing that, but we'll have to look and see how we do that.''

One of the points made by Canada at the time was it's very difficult to talk in exact figures, but generally speaking we spend what we need in order to meet our commitments to our partners, and that has been the historical point. But I certainly think that the government needs to have a good look at what it needs to spend.

As I said earlier, maybe it needs to move funds from other areas into DND to do the things those funds were intended for. For example, the government has talked about additional infrastructure spending. Why not spend some of that planned money on DND infrastructure?

Mr. Perry: The 2 per cent target is one that Canadian governments have been missing for decades. I see almost no possibility that we'll come anywhere close. We require a doubling of the defence budget and almost $40 billion in defence spending. Right now out of just under $20 billion, DND has a larger budget than all but four or five federal government departments.

A better place to focus is that out of the last several years the previous government had put a lot of effort into making a persuasive argument that while we may not be anywhere close to the target, our contribution to NATO in terms of operational commitments has been very high end and puts us right at the top in terms of the activities and the quality of the forces and capabilities we have been deploying.

What the government has also empowered them to do when they get there has given us a competitive advantage and provided us with an offset and a persuasive response to the fact that we aren't anywhere close to meeting the spending targets and I don't think we ever will be.

[Translation]

Senator Carignan: Mr. Perry elaborated on an issue I wanted to ask about. Thank you.

[English]

Senator White: Isn't it true that in the U.S. and other countries they include things like the National Guard in emergency preparedness, where in Canada we do not include it in National Defence? It is like statistics; it is a bit of a crap shoot.

Mr. Perry: You can slice and dice it a bunch of different ways. The exact percentage would range between a little bit under 1 to 1.3 depending on how you count it.

The basic point is that it doesn't matter what you count in Canada. We don't spend enough money on all of DFO or the other activities you mentioned. Even if we were to include all of them in their entirety, we would still be nowhere close to 2 per cent.

The Chair: I'd like to thank Ms. Lindhout and Mr. Perry for their presentations today. We appreciate the work you do. We know that it is non-partisan and for the purpose of looking out for what is best for our military and country. Organizations like yours are vital for the government to see how other organizations view what's happening within the defence agency.

(The committee continued in camera.)