Standing Committee on National Defence (NDDN)
feat. David Perry
June 16, 2023

MEETING NOTICE

Dear Mr. Chair and members,

Thank you for the invitation to appear today.

In my opening remarks I will make two observations about our procurement system, make two suggestions about topics the committee may want to study, and offer two recommendations.

My first observation is that the problems with our procurement system are systemic and persistent and now a decade and a half old.  Most projects, upwards of two thirds, are delayed by a year or more.  As a result, we continue to spend billions less on capital acquisitions than intended, year after year after year. As you heard from the PBO last week, last year this amounted to DND spending $4 billion less than anticipated under Strong, Secure Engage, but it’s important to note that this underspending has been chronic, dating back to 2007.

This means that we aren’t just struggling to implement the procurement plans in Strong, Secure, Engaged, but are still working on procurements from the 2008 Canada First Defence Strategy and earlier. This is the case despite a range of previous efforts at procurement reform. These improvements have simply not been sufficient to keep pace with a dramatic increase in expected procurement activity.  Without major changes, you should expect the implementation of NORAD modernization and the Defence Policy Update to also fall well short of expectations. Further incremental improvements to our procurement system will only result in incremental improvements in procurement output. If we want the dramatically better output needed to deliver a defence policy suited for the current strategic environment, we need dramatic change.

A second observation I will make, is that there is no detectable sense of urgency when it comes to defence procurement, which is problematic for at least two reasons. First, current interest and inflation rates mean that the financial impacts of procurement delays are now much worse than they were only a year and a half ago, which in turn means the impact of procuring in a timely manner is much more important to preserve buying power than it used to be. A second reason for urgency is the strategic environment. What seems to be largely business as usual approach is not sufficient to equip Canada for the great power competition we are now witnessing.  We are struggling to equip troops in Latvia with everything from ear plugs to air defences and that isn’t good enough.

Let me switch gears and suggest two areas for the committee to study, service contracting and infrastructure. Service contracts are fundamentally important to the Department of National Defence and Canadian Armed Forces, who spend more on this than any other department in government. The Budget 2023 announcement of a 15 per cent reduction to service spending will amount to about a roughly $750 million cut for defence, and in my analysis it will be very difficult to implement this without serious impacts. Roughly half of what DND spends on services goes to engineering and architectural services. Therefore, a significant share supports the direct delivery of capital equipment and infrastructure or provides for aircraft, vehicles and ships maintenance. The committee may wish to better understand the procurement implication of these planned budgets cuts.

Regarding infrastructure, the majority of the money provided for NORAD modernization is funding for infrastructure upgrades, and separately, DND has aggressive net zero commitments and achieving them will require huge overhauls of DND’s existing infrastructure footprint. This means that we are planning for a massive increase in infrastructure spending over the next several years. It’s not clear to me what is being done to ensure that the exact same problems we’ve experienced with equipment purchases of missed deadlines and lapsed spending won’t happen with tens of billions worth of anticipated infrastructure funding, so the committee may wish to explore this as well.

Finally, I would offer two broad recommendations. First, it will take time to make the dramatic changes to our procurement system that are needed. In the meantime, much greater prioritization across all parts of the procurement system would ensure that insufficient resources are focused where they are most needed.

Second, if we want dramatic change that is meaningful, we need much, much better data about defence procurements of all types to better understand what is working and what isn’t, where the problems are, and what best practices should be replicated. If we want to make effective changes, we need much better data as a starting point. And lastly, related to this, I would echo the calls from other previous witnesses about the need to increase transparency. Far too many conversations about Canadian defence procurement occur in a near information vacuum, and that work is too important to be done silently behind closed doors.

Thank you.