NDVA Committee Meeting

37th PARLIAMENT, 1st SESSION

Standing Committee on National Defence and Veterans Affairs

EVIDENCE

CONTENTS

Thursday, June 6, 2002

¹

1530

The Chair (Mr. David Pratt (Nepean—Carleton, Lib.))

¹

1535

¹

1540

The Chair

Captain (Navy) Yvon De Blois (Project Manager, Supply Chain Project, Department of National Defence)

¹

1545

The Chair

Ms. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance)

Capt Yvon De Blois

Ms. Cheryl Gallant

Capt Yvon De Blois

Ms. Cheryl Gallant

Capt Yvon De Blois

¹

1550

Ms. Cheryl Gallant

Capt Yvon De Blois

Ms. Cheryl Gallant

Capt Yvon De Blois

Ms. Cheryl Gallant

Capt Yvon De Blois

Ms. Cheryl Gallant

Capt Yvon De Blois

Ms. Cheryl Gallant

The Chair

Mr. Claude Bachand (Saint-Jean, BQ)

¹

1555

The Chair

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.)

The Chair

Capt Yvon De Blois

º

1600

The Chair

Mr. Janko Peric (Cambridge, Lib.)

Mr. Richard Burton

º

1605

Capt Yvon De Blois

Mr. Janko Peric

Capt Yvon De Blois

Mr. Richard Burton

Mr. Janko Peric

Capt Yvon De Blois

º

1610

The Chair

Mr. Yvon Godin (Acadie—Bathurst)

Capt (Navy) Yvon De Blois

Mr. Yvon Godin

Capt (Navy) Yvon De Blois

Mr. Yvon Godin

Mr. Richard Burton

º

1615

The Chair

Mr. Godin

Mr. Richard Burton

The Chair

Mr. Richard Burton

The Chair

Mrs. Elsie Wayne (Saint John, PC)

Capt Yvon De Blois

Mr. Richard Burton

Mrs. Elsie Wayne

Capt Yvon De Blois

º

1620

Mrs. Elsie Wayne

The Chair

Mr. Richard Burton

The Chair

º

1625

Capt Yvon De Blois

Mr. Richard Burton

Mr. Leon Benoit

Mr. Richard Burton

Capt Yvon De Blois

Mr. Leon Benoit

Capt Yvon De Blois

Mr. Leon Benoit

Capt Yvon De Blois

º

1630

Mr. Leon Benoit

The Chair

Mr. Claude Bachand

The Chair

Mr. Claude Bachand

The Chair

Mr. John MacLennan (National President, Union of National Defence Employees)

º

1635

º

1640

The Chair

Mr. Peter Cormier (Executive Vice-President, Union of National Defence Employees)

The Chair

Mr. Claude Bachand

The Chair

Mr. Bob Wood

Mr. John O'Reilly

The Chair

Mr. John MacLennan

º

1645

The Chair

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

Mr. David Price

Mr. John MacLennan

º

1650

The Chair

Mr. John MacLennan

The Chair

Mr. Yvon Godin

Mr. John MacLennan

Mr. Yvon Godin

º

1655

Mr. Peter Cormier

The Chair

Mrs. Elsie Wayne

Mr. John MacLennan

»

1700

Mrs. Elsie Wayne

Mr. John MacLennan

Mrs. Elsie Wayne

Mr. John MacLennan

Mrs. Elsie Wayne

The Chair

Mr. Bob Wood (Nipissing, Lib.)

Mr. John MacLennan

Mr. Bob Wood

Mr. John MacLennan

»

1705

Mr. Bob Wood

Mr. John MacLennan

Mr. Peter Cormier

Mr. Bob Wood

Mr. Peter Cormier

The Chair

Ms. Cheryl Gallant

Mr. John MacLennan

Ms. Cheryl Gallant

Mr. John MacLennan

Ms. Cheryl Gallant

Mr. John MacLennan

Ms. Cheryl Gallant

»

1710

Mr. John MacLennan

Ms. Cheryl Gallant

Mr. John MacLennan

Ms. Cheryl Gallant

Mr. Peter Cormier

The Chair

Ms. Cheryl Gallant

The Chair

Mr. Peter Cormier

Mr. John MacLennan

The Chair

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

»

1715

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

Mr. Price

Mr. John MacLennan

The Chair

Mr. Claude Bachand

»

1720

Mr. John MacLennan

Mr. Claude Bachand

The Chair

Mr. Price

Mr. Peter Cormier

Mr. John MacLennan

Mr. Peter Cormier

Mr. Price

Mr. Peter Cormier

Mr. Price

Mr. Peter Cormier

»

1725

Mr. Price

Mr. Peter Cormier

Mr. Price

Mr. Peter Cormier

The Chair

Mr. Yvon Godin

Mr. Peter Cormier

Mr. John MacLennan

Mr. Yvon Godin

Mr. John MacLennan

The Chair

Mrs. Elsie Wayne

Mr. John O'Reilly

Mrs. Elsie Wayne

The Chair

A voice

The Chair

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CANADA

Standing Committee on National Defence and Veterans Affairs

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NUMBER 059

l

1st SESSION

l

37th PARLIAMENT

---

EVIDENCE

Thursday, June 6, 2002

[Recorded by Electronic Apparatus]

¹  (1530)  

[English]

    The Chair (Mr. David Pratt (Nepean—Carleton, Lib.)): I'd like to call to order this meeting of the Standing Committee on National Defence and Veterans Affairs.

    Today we're hearing from witnesses on the issue of the supply chain. We are very pleased to have witnesses present from both the Department of National Defence and the Union of National Defence Employees.

    We've divided the time today so that Mr. Richard Burton, chief of staff, materiel, from the department, and Captain (Navy) Yvon De Blois are going to be speaking in the first hour of the meeting, from 3:30 until 4:30. Then from 4:30 until 5:30 we will have the union representatives, Mr. John MacLennan, national president of UNDE, as well as Mr. Peter Cormier, the executive vice-president of UNDE.

    Gentlemen, thank you for coming here today on such short notice. We appreciate your presence before the committee.

    At this point I'm going to turn the floor over to you, Mr. Burton, for your presentation.

    Mr. Richard Burton (Chief of staff, Department of National Defence): Thank you, Mr. Chairman.

    We appreciate the opportunity to be here, albeit on short notice. I got off an airplane at 1:30 p.m., called my office, and my secretary said, “You're going to SCONDVA.” I obviously don't have any prepared comments, but I would like to make just a few brief introductory points. Then, as you've suggested, I'll turn it over to Captain De Blois, who is the project manager for the supply chain project.

    There are three points I'd like to make. The first is that initiatives such as the supply chain project are not new to us in defence. We've been looking at opportunities like this over a number of years, particularly the last four or five years. Our whole interest in the department is making sure that we have the capability the Canadian Forces need to perform the tasks and missions the government asks them to do.

    With the budget we have, we're always looking for opportunities whereby we think we can make intelligent savings. I say “intelligent” in the sense that these are not things we haven't thought through and done an awful lot of analysis and work on; they are things we've studied quite thoroughly. We have other initiatives that I could go into, but I won't. There are a number of examples I could suggest to you.

    Even though we do this as a practice, because it's important that we become more businesslike in the Department of National Defence, I will make the clarification that we are not a business, at least in my view. We are a security policy, if you want, for the citizens of Canada, for the government, but we do need to perform more like a business in certain key areas. I think some of you would understand that.

    It's particularly acute right now. As you know, we're in some form of discussion about a defence policy review or update. Certainly from a planning perspective--and not speaking for the department--we have to make at least one assumption: that there may be no new resources for defence.

    If, happily, there were more resources, then we would be happy as well, but prudent planning at least would suggest that in some of the options we look at we have to consider our current budget. In doing that, it means that in a fixed pot you're going to have to make some tough decisions. Those decisions can ultimately impact on the number of airplanes, ships, or army vehicles and so on that we have. Therefore, it behooves all of us in the defence department to be sure that we're looking at all of these opportunities.

    The second issue I wanted to raise on the supply chain project is the issue of security. I know there's been a lot of discussion about this. A number of our systems are maintained in industry. Increasingly that is the trend, not only amongst the Canadian military but amongst most of our allies, which increasingly are relying on the private sector to maintain a lot of our weapons systems that are indeed essential, as you all know, in operations. Therefore, we need to have contractual guarantees on performance. We've been doing this for a number of years. I could run through a list of our major weapons systems, which in some cases are wholly maintained by industry. We do not do it anymore in the department.

    So this isn't something that's new to us in terms of looking to form alliances with the private sector to improve the overall defence capability, to bring the best of what we think we do in defence with some of the private sector's best practices.

    I'd also emphasize that we're talking here about our domestic supply and distribution system; we're not talking about our military operational system. The notion that this is something that would impact on the troops on the ground in Afghanistan or in Bosnia is not the case. We're talking here about the supply and distribution business that we do between and among our bases all across Canada.

¹  (1535)  

    As many of you know--and I think some of you may have visited Bosnia--we actually have a Canadian contractor providing the support in theatre to our troops on the ground today. While this is not without its challenges in terms of a change in how we've always supported military operations, I can tell you that in the short space of three rotations we have gone from a posture where the military had 100% backup prepared to go in and take over from the contractor if it were required, to the second rotation, where it is 50%, and to the third rotation, where we have no backup, because we're that confident with the work the contractor is doing to support our troops in Bosnia. If you've been there, I think you've probably seen that.

    The third point I would make relates to our people. I know that we've dealt with our friends in the union on a number of initiatives, and many of them are here today and will be talking to you later. We try to approach all of this--and I think we have a pretty good track record of doing so--in a very collegial way. We realize that this is not an easy thing to contemplate. We realize that our employees and their members have concerns about initiatives like this. We have worked very closely with them. When they talk to you, hopefully they will suggest that they played a major role in getting the kind of agreement to look after our people that we got from this particular contract. You'll hear the details when Captain De Blois speaks to you.

    I think that by most standards it's an outstanding deal. I leave that to your individual judgment, but I think that when you hear the details--hopefully, our union folks will support this as well--you will acknowledge that it does have some merit, particularly over other initiatives we've dealt with in the department.

    We care about our people. I say this from a personal perspective as someone who has been in the defence department, either in uniform or in this outfit, for 35 years. We care about our people, and should we go ahead with this initiative we would want our people to continue to provide the kind of support they've been providing us and Canadians for many years. I think we can point to all kinds of examples. Whether it's Afghanistan and getting troops and ships ready or a decade ago in the Gulf War, it was the same high level of performance. That's what we want to maintain and safeguard for Canadian defence capability.

    Those are the three points I wanted to make to set the context for you. Certainly when Captain De Blois has finished with his short presentation, which will provide a little more detail, we'll answer any questions you have.

¹  (1540)  

    The Chair: Captain, you have the floor.

    Captain (Navy) Yvon De Blois (Project Manager, Supply Chain Project, Department of National Defence): Thank you, Mr. Chairman. I'm personally pleased to be back before the committee as part of a group on alternative service delivery. In DND, I had the occasion to brief you on the supply project approximately four years ago as we were beginning our analysis.

¹  (1545)  

[Translation]

    So I would like to give you a project update and then we will be pleased to answer your questions.

[English]

    I would like to begin with what we are doing, taking it from the general to the more specific. The project is part of DND's ongoing efforts to rethink the way we do business in order to focus our scarce resources on our core business, which is military capability.

    In this project, we're seeking to leverage off proven capability in the private sector to deliver performance and efficiencies. Savings from this process, should we go ahead, would then be focused on military capability.

    More specifically, we're looking to outsource the day-to-day management and operation of non-combat logistics functions, such as warehousing. We manage approximately 4 million square feet of warehousing across the country, transportation to and from our various clients, and related inventory management functions such as inventory accuracy, which means how much we hold and where it's located in order to satisfy the needs. We're looking to do that at depots, bases and wings across Canada.

    Also, what we are not looking at outsourcing is military logistics, as was indicated by Mr. Burton, i.e., activities that are conducted in the combat zone. You can call it battlefield logistics or you can call it campaign logistics. In any case, because operations where bombs are bursting and bullets are flying are the very definition of military activity, we would continue, therefore, to deliver that with military personnel, and also because the discipline of providing logistics services in a combat zone is a unique discipline that is associated with the military and not commonly found in the private sector. For those two reasons, we will continue to deliver those kinds of logistics services, which we label as military services, by using the military.

    Further, we're not outsourcing buying decisions that the Department of National Defence currently makes. We will continue to make those in the future. We will also not outsource negotiations with suppliers. We feel that they are government responsibilities, and they will remain with the government.

    Finally, we are not outsourcing the determination of technical specifications for the parts that we hold in our inventory.

    What we are really doing is looking at the management and operation of our warehouses, the transportation of materiel on Canada's highways to our bases, stations and depots, and the inventory management related to that function. By leveraging off the proven capabilities of the private sector in these areas, we're looking to get performance improvements and we're looking to get savings. Our business case, which we tabled in 1999, identified savings in the order of $70 million a year by outsourcing this function I've identified for you. Finally, in doing so, we're looking to focus on our core business, namely, military logistics.

[Translation]

    Where do we stand today? Following a competitive selection process, on August 30, 2001, the government awarded a contract to Tibbett & Britten Group Canada to improve the cost benefit analysis of the project and prepare an implementation plan which will be submitted to the government at the end of the summer or in early October. If that plan is accepted by the government, a new contract will be signed with the same contractor for a seven-year period, with an option for a four-year extension at the government's discretion.

    Tibbett & Britten Group has been operating in Canada for 13 years now and is recognized as the largest third party logistics company in Canada. Its owners are foreigners, as is the case of many other Canadian companies with which the department does business.

[English]

    Mr. Burton mentioned that we do care about our people. I'd like to summarize briefly what it would mean for our people to proceed in this fashion. The fair and reasonable treatment of our employees has been a cornerstone of the project, and the department has fully consulted with its unions throughout the entire process.

    As a result of mandatory requirements and incentives in our request for proposals, the contractor has committed to: making reasonable job offers to 100% of the permanent civilian employees affected by the project; guaranteeing employment for seven years, with salaries equivalent to or better than public service rates of pay; and providing a full range of benefits, including health, dental, disability, and pension. For military personnel who are currently working in the supply chain, a number of military personnel would be embedded in the contractor's workforce to maintain skills and to be available to deploy at any time, much as we do today.

[Translation]

    In closing, Mr. Chairman, I would add that, in the past two years, the main project documents have been accessible to the entire world on the department's Web site. They include the cost benefit analysis, request for proposals, interim reports, press releases and a lengthy list of questions and answers. We believe we have been transparent with all stakeholders, including the Canadian public.

    Thank you, Mr. Chairman.

[English]

    The Chair: Thank you very much, Captain.

    We will now have questions from committee members.

    Mrs. Gallant.

    Ms. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): Thank you, Mr. Chairman.

    Captain, you have mentioned employees being embedded in the system so that the skills would be kept up. Approximately how many are you talking about?

    Capt Yvon De Blois: In our business case in 1999, we identified up to 1,400 military personnel embedded across the country in the contractor's facilities.

    Ms. Cheryl Gallant: But no minimum?

    Capt Yvon De Blois: No, there's no minimum. Really, the minimum is what is required by the military occupation structure, i.e., we have operational plans where we identify rank, trades, and competencies we need for operation. Because we rotate people through operations, when they're not out there we need to employ them gainfully in Canada, which we do today, in their trade in our supply system. They are embedded today in our supply system, but they're in uniform solely because we've identified a wartime role for them. We could do those functions using public servants or contractors.

    Ms. Cheryl Gallant: What financial amount is being attributed to the number of soldiers and is there going to be consideration on the part of the contractor? For example, let's say there are 1,000 soldiers who are going to be embedded, will there be a similar amount, based on what their salary is, their overall compensation, deducted from the cost of the contract, or will that just be a bonus to go to the contractor?

    Capt Yvon De Blois: The cost of the military personnel will not flow through the contractor. The people will continue to be paid directly by DND. However, the cost of the work they perform will be counted in the total cost of delivering the service. As the contractor reduces that total cost--because this is a performance contracting scheme--then his profit will be tied to making those kinds of efficiencies.

¹  (1550)  

    Ms. Cheryl Gallant: Okay. One of the purposes of the outsourcing initiative is to achieve millions of dollars in savings by adopting these private sector practices. What specifically will be implemented to achieve these dramatic savings?

    Capt Yvon De Blois: One of the major changes that's going to occur is that we will be operating this function in a commercial management framework with a lot of the flexibilities that the private sector can provide in terms of decision-making, introducing technology, ramping up labour when needed, and so on and so forth.

    There are flexibilities there. When you manage what we have concluded is really a commercial-type business, the way it gets managed today inside the government is that all the government overheads are currently being applied to functions such as driving forklifts and packaging materiel and so on and so forth. We feel this is not necessary.

    So one aspect is the management framework and a second would be the commercial best practices we can learn from. This doesn't mean everything we do in DND is not correct; we also have a number of good practices. What we are really trying to do is take the very best of the military, put it alongside the very best practices of the commercial sector, and basically provide a service that is second to none, certainly at this time.

    Ms. Cheryl Gallant: Just backing up one moment to the question I had before, did you say that the money DND would have to pay to the contractor would be reduced in accordance with the level of embedded DND employees? How is the consideration going to be calculated?

    Capt Yvon De Blois: Let me see if I can be clearer. Today we pay these military personnel directly and we send them to work in our supply and distribution activities. It's a direct cost to us. Tomorrow we are going to ask the contractor to manage the same activity. We will continue to pay our military members directly because they are military in every way. They will get paid out of the same pay office they currently are paid out of. When they are sick, they are going to continue to go to a military doctor. All we are going to do is provide that workforce to the contractor. He will not charge us for it, and we will not give him the money to pay for our people, because we have already paid for them.

    However, our costs to pay for those people are part of the costs he is being asked to manage. Therefore, when we calculate savings, that is part of the cost upon which he has to make reductions.

    Ms. Cheryl Gallant: What you're saying, then, is that the way it is, the financial saving is the fact that they are doing the managing.

    Capt Yvon De Blois: For those military members, yes, but there is another large component of the workforce: the civilian employees who are direct employees of the company.

    Ms. Cheryl Gallant: You mentioned a little while ago that there were certain best practices. DND supply depots in Montreal and Edmonton are ISO 9000 accredited. Is the company you're looking at awarding the contract to already accredited?

    Capt Yvon De Blois: There are various companies in the Tibbett & Britten Group. Some of them have accreditation. In the case of some of them, their customers really don't desire them to be accredited and thereby increase costs.

    The company has committed in this particular contract to provide accreditation by the end of the contract for the entire supply chain, not just for the two depots but for every facility in the country.

    Ms. Cheryl Gallant: Can I have one last question?

    The Chair: Actually, your time is up, Mrs. Gallant.

    Monsieur Bachand.

[Translation]

    Mr. Claude Bachand (Saint-Jean, BQ): Thank you, Mr. Chairman. I would like to thank these gentlemen for their presentation. First, I want to venture a little into the area of the philosophy which appears to be emerging, according to which we would like to take the best of the Canadian Armed Forces and the best of the private sector and create a business space that could be highly profitable.

    However, I admit I have enormous problems considering that because the private sector's primary purpose is to make money, to make profits. When it comes to military security and reasons of State, I find it hard to see how private enterprise and the army can get along together, particularly on an aspect as important as the supply chain. I have a few examples.

    Moreover, a lot of things have changed since September 11. It seems to me we should pay special attention to our approach to the military question so that we can increase security.

    For example, I'm virtually certain that a security investigation is conducted on people who work at National Defence. For example, I would like to know whether Tibbett & Britten Group will do security clearances when selecting the people it hires. It seems to me that anyone can be hired by Tibbett & Britten, but that there would not be the same level of security as within the context of the Canadian army.

    There are other examples. In my riding, in Saint-Jean-sur-Richelieu, I was a victim of the great ice storm. I remember quite clearly that the federal government, through the Department of National Defence, ordered all those on the megastructure to work full time as long as possible. There were people working round the clock, who went for a rest and worked another 24 hours, and did so for a month.

    What will happen if there's another ice storm in the riding of Saint-Jean? Will Tibbett & Britten, which wants to make profits, give the same kind of orders as those the Department of National Defence gave to the people under its responsibility? These are extremely important things for us members because it is not only the safety of soldiers that is at stake, but also that of the voters in our ridings.

    I look at the security clearances that can currently be given in the Inter-Army Operational Force. These things are kept a bit secret, but, when the Inter-Army Operational Force demands things before being deployed somewhere, what level of confidentiality will apply to those secret operations? I believe a certain degree of confidentiality can be assured as part of ministerial responsibility. It seems to me private sector security measures may be a bit lax. So I find that this relates directly to the question of military security and reasons of State contended by these people.

    In your plans, you mentioned that your warehouses were going to stay where they are for two years, but, for security purposes, those warehouses are currently commissioned. They are on military bases and are monitored. Who is to say that, in three years, you won't relocate them to the middle of a city or that they won't be either commissioned or monitored? These are questions we are in a position to ask.

    I'm going to stop there because I would like to have some answers.

    Are we going to have a second round, Mr. Chairman?

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[English]

    The Chair: We'll have to see how the time goes, Mr. Bachand, but--

    Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.): If you ask him for time he'd build you a grandfather clock.

    Some hon. members: Oh, oh!

    The Chair: We're at almost four minutes in terms of your questions. Maybe we could get some quick responses from our witnesses on the issues you raised.

    Capt Yvon De Blois: Yes, thank you.

    I'll start on

[Translation]

the security clearances, sir. We require that the supplier meet the same security standards as our present employees. This is done through the Department of Public Works and Government Services. Investigations done to certify employees are conducted by the Royal Canadian Mounted Police in precisely the same way as those conducted for the purpose of assigning me and Mr. Burton a security clearance. A number of our suppliers who support our combat systems, our ships or tanks, need a security clearance and are subject to the same criteria as we are.

    As to the question of the lack of monitoring or relocation of depots or warehouses anywhere in Canada, once again, as stipulated in the request for proposal, the contract requires that the supplier meet the same security standards as those currently applying to our personnel and ourselves. So if a contractor conducted a cost benefit analysis for us which stated that it would be advantageous for the department to relocate a warehouse to the left or to the right, it would have to prove to us exactly not only what economic benefits that would entail, but also meet all the security and performance standards we must meet.

    As to the ice storm, you asked us whether the contractor would be on the spot as the government has been in similar conditions. Once again, the agreement we have with the contractor is a partnership agreement. We are not abandoning our supply chain to the contractor so that it can do what it wants; we continue to manage the supply chain. We are still the client. We ask the contractor to provide our services. The client can always ask the contractor to do more or less.

    So the contractor always has a duty to meet our needs. That's why the contract contemplated is a partnership contract under which the supplier must be flexible and respond to our needs on a day-to-day basis. If our needs change, the contractor must supply what it has undertaken to supply. Obviously, the cost will change, but its profit is directly related to its performance in response to these emergencies. Its profit depends precisely and directly on its ability to respond to emergencies to which it is assigned.

º  (1600)  

[English]

    The Chair: Thank you very much, Captain.

    In the interests of having questions from as many members as possible, we're going to move along now to Mr. Peric.

    Mr. Janko Peric (Cambridge, Lib.): Thank you, Mr. Chair.

    Mr. Burton, you stated that you wanted to make intelligent savings. Could you expand on that?

    Second, I believe both of you mentioned that with the contract there will be a guaranteed seven-year job. What happens after that?

    On performance improvement, is there a problem with performance of employees at the present time? How would you improve performance? How would you save money? Could you tell us a little bit about that?

    Capt Yvon De Blois: I can try.

    Mr. Richard Burton: Let me answer the first question. When I said “intelligent savings”, I was implying that we have done an awful lot of thorough analysis in any of these initiatives, to remind us, I guess, that we are still in the middle of a process.

    You may or may not be aware of it, but we signed the first contract with Tibbett & Britten Canada last August, as Yvon said earlier. We have a one-year timeframe for the contractor to look at the business case on which they bid, to travel the country and look at all our supply depots and bases, and to get accurate measurements. In other words, they are to make their own judgment as to whether they think there is a proposal they would like to bring forward to the government at the end of this year, likely at the end of summer or in early September.

    Similarly, on our part, when they make that proposal to us as to how they would implement the supply chain project on which they bid competitively, we will have the opportunity to examine that and to make a decision as to whether we believe that implementation proposal will still meet our needs, as to whether we have confidence that it will meet our needs.

    When I talk about “intelligent decision-making”, I'm just saying, without applying it to myself, that we will look very seriously at the proposal the contractor makes, and we will make our own judgment as to whether we think that warrants moving into the contract Captain De Blois talked about. He can tell you about the seven years.

º  (1605)  

    Capt Yvon De Blois: Very quickly, it is a seven-year contract with two two-year options at the discretion of the crown. It doesn't matter where it occurs, but certainly at the end of it, the thinking and the philosophy behind these arrangements is that we re-compete the service. Competition is one of the instruments we use to get performance and cost reduction. This particular contractor has earned the right to propose this arrangement with us. Should we proceed with it, he has the right to deliver the service for seven years. Whether we extend or not, we would re-compete the service after that.

    Mr. Janko Peric: If you're not happy with that service, what's going to happen after seven years? You won't sign a contract?

    Capt Yvon De Blois: If we extend, we sign another contract for two years, and we can do that twice, but it's guaranteed that at the end of 11 years the intent is to re-compete the service and let competition again identify performance improvements.

    Mr. Richard Burton: May I just very briefly add to that? There are a lot of other initiatives as well, some of which you may be aware of. For example, there is the NATO flying training program, the helicopter pilot training program, in Portage. We've had experience now with those contracts, and we are in the process of re-competing the Portage contract. There is a competitive market out there, and we are competing it. Who'll win? We don't know, but we are competing it, again as a measure for driving our costs down, so it isn't as if we haven't had some experience in doing that.

    As well, I'll go back to the example of the troops in Bosnia that were supported by a contractor. We've just extended the option. We had a two-year contract, and we had an option on the third year. We have just extended that, and they're in the process of completing that third-year contract. Our intent, then, is to re-compete it through a process we call CANCAP, a follow-on to it which would allow us to have the flexibility, where our troops were strained in many theatres and so on, to go back four and five times to theatres as a way of addressing that quality of life issue.

    I think our experience so far has been that where we make an assessment there is a competitive market out there and we feel we've mitigated the risk you're probably suggesting.

    Mr. Janko Peric: This is my last question. You're telling me that you're going to improve performance with the same employees. Why can't you do that right now? How can you convince me that you're going to do it--

    Capt Yvon De Blois: Well--

    Mr. Janko Peric: Yes, please--

    Capt Yvon De Blois: Okay. I mean the same number of permanent employees. Our workforce is not just made up of permanent employees. We also have what are known in the commercial sector as contract employees, which we call terms, we have casual employees, and we also employ local contractors to do some of the service. The current costs are not just associated with our permanent employees. Similarly, there are military members who do this. The ones that we will embed are the those that have been identified as required to be deployed and so on and so forth. As we make efficiencies, other members will be available to redeploy to other jobs.

    So at the end of the day, for the efficiencies in the service sector, typically a good rule of thumb is that 75% of your costs are labour costs. If you're going to make savings, you're going to have to make efficiencies. You're going to have to find ways to do things better and with fewer people. So while we're going to keep 100% of our permanent employees and we are going to embed the military members I've identified to go to operations, there are opportunities to redeploy some military members and, in the longer term, there are opportunities with our contract employees to actually do a workforce reduction.

º  (1610)  

    The Chair: Thank you, Mr. Peric.

    Monsieur Godin.

[Translation]

    Mr. Yvon Godin (Acadie—Bathurst): Thank you, Mr. Chairman. I would like to welcome you here today.

    Like Mr. Peric, I'm having trouble. How can you say there's going to be an improvement, that the same standards will be met, that the same salaries and even better benefits will be paid to the same number of employees? I believe you've just clarified that: it's no longer the same number of employees; it's the same number of full-time employees, and all the others may be laid off. So, in fact, there will no longer be the same number of employees. Whether he work directly or indirectly, an employee is an employee. We're going to give this aspect of the Department of National Defence Canada to a company from a foreign country.

    Perhaps that doesn't come from you, perhaps it's the message you were told to transmit to this committee, but I believe we are losing a little of our sovereignty. I have trouble understanding why we Canadians don't have people capable of managing our national defence and why we have to rely on the British to manage it for us. I have trouble understanding that.

    Capt (Navy) Yvon De Blois: With regard to your first point, Mr. Godin, the payroll will be reduced. That does not necessarily mean that people will be laid off. The supplier has undertaken to make offers of employment. That does not necessarily mean that everyone will accept them: some may want to go elsewhere. There are always retirements and opportunities, as you said, for part-time employees. In the near future, this will definitely not be the case, but over the long term, we may have fewer part-time employees than we currently have.

    Mr. Yvon Godin: But what's preventing you from doing it yourselves rather than giving it to a contractor?

    Capt (Navy) Yvon De Blois: We can do it, but if we do it ourselves, there will be cuts. What we're looking for is efficiency: doing the same work with fewer resources. There are limits to efficiency within a government system, within the federal bureaucracy, and, to a certain point, the function should be placed in the context of the private sector's flexibility.

    Mr. Yvon Godin: Today we're looking at the government's file as opposed to that of the private sector. We have realized in recent weeks that we did not have a nice file at the House of Commons. Who's going to monitor that? While we're at it, perhaps we could hire a few soldiers from Great Britain and France. We might as well give them a contract too to provide for our defence. We've almost gotten to that point. I have trouble understanding why the National Defence of Canada is required to contract this out. We have people who are qualified. Frankly, with a government mandate, you would be able to solve the problem internally with the union rather than wash your hands of the matter and award this to a contractor while contending that's the best way to do it. I'm sure you're capable of doing it.

    Do you have a mandate to answer that question, or is your mandate to present this to us and do what your bosses have told you to do?

[English]

    Mr. Richard Burton: One of the points I wanted to make earlier in my introductory remarks was that we have done a lot of this in partnership with our employees, with the unions and their members.

    Five or six years ago, the operation of our supply and distribution business was a $600 million a year operation. Through a lot of joint work, a lot of good work on the part of our employees in participating in how we can make changes, we have reduced that $600 million to $350 million. The $350 million is the amount of business that is on the street with a supply chain contractor, to consider whether they can realize any further savings through the kinds of win-win situations Captain De Blois referred to.

    I remind our folks quite often that we were on this very track. We were looking at our depots and so on before we decided to do this comprehensively across the department. We were looking at whether we could take it that one step further.

    The other point I would make is that we did it , but not necessarily by people reductions. Sure, we had a big budget cut, and the first way you respond to that is with people because it's the only immediate saving you get, but a lot of it was done through rationalizing our inventory, through putting our warehouses onto a single tier so that we didn't have a hierarchy where you have one depot reporting to this and to that and you stock it many times. It was through those kinds of initiatives that we were able to take that operation down and contribute to the capability of the Canadian Forces.

    Mr. Yvon Godin: Yes, but the--

º  (1615)  

    The Chair: Mr. Godin, I would ask you to direct your comments through the Chair.

    Mr. Yvon Godin: Yes, Mr. Chair. I'm very sorry.

    Through the chair, is it not that really now you are at the point where the only place you can save money is on the workers, and you need a contractor to put them to slaving? That's how I look at it.

    You're there, you have the capacity to do the job, and now they are right to the background, and they say “Now we need somebody else to do the dirty jobs” and give the orders and be rough or do this or do that, or you get them to work for maybe less wages and you don't have to answer for it. Something is going wrong here, totally wrong.

    Mr. Richard Burton: Honestly, I understand that sentiment, but I would suggest that if a company is world class it doesn't get there by treating its employees that way, any more than we treat our employees that way.

    I think you've heard the details of the offer they've made. I would have to leave it to your judgment, but I would suggest that this is not how we treat our employees. We wouldn't be considering doing this if that were the way we felt this contractor treated employees.

    Mr. Yvon Godin: Through you, Mr. Chair--

    Mr. Richard Burton: The other point I would like to make is--

    The Chair: Very briefly, because Mr. Godin is almost out of time.

    Mr. Richard Burton: Very briefly, again, what I didn't state at the start was that of the items we use to maintain our equipment in the Canadian Forces only 30% is currently carried in the supply system. About 70% is already out in the private sector with companies that are repairing our ships, our minor war vessels, and our CF-18s. They buy the spares. They do all of that, so 70% is already out there.

    The Chair: Mr. Burton, I'm going to have to cut you off there, because we want to get to as many members as possible in this round.

    I'm going to thank you as well, Mr. Godin.

    Mrs. Wayne, you have the floor.

    Mrs. Elsie Wayne (Saint John, PC): Thank you very much, Mr. Chair.

    Mr. Chair, my first question to Mr. Burton and to the Captain would be, are these changes taking place because of the cutbacks to DND and the DND budget?

    Capt Yvon De Blois: As Mr. Burton says, even if we were rolling in money, which we would like, we have a responsibility for resource stewardship and we have a responsibility to deliver to the Canadian taxpayer the very best DND we can. In fact, we would still be looking for opportunities to deliver performance improvements and efficiencies, regardless.

    Given that the Canadian Forces is indeed stretched, as you on this committee probably know, perhaps that's another incentive for looking at this in the short term, but in general we owe it to everybody to look for better ways of doing business.

    Mr. Richard Burton: If I could just add to that, like all government departments we played our part in addressing the deficit issue and there were some tough choices to make. I think the opportunity to rethink it after a decade is the defence policy review, whereby we hope that the kinds of issues that need to be discussed will be, in terms of resources and getting the right kinds of balance among the people we have, the equipment we have, and what we need to support them. That's what we're very much looking forward to.

    Mrs. Elsie Wayne: The captain also said there had been extensive consultations with the relevant unions. I'm curious to know if any unions have signed on in support of this change at the present time. If not, could he tell us what factors prevented them from giving their endorsement?

    Capt Yvon De Blois: I can identify the consultation process whereby essentially the governing rules with civilian employees were affected. They were basically negotiated between the unions and the Treasury Board as part of the workforce adjustment agreement and workforce adjustment directive. They are the basically the base documents upon which the Department of National Defence built its HR strategy for dealing with civilian employees. It did so in consultation with all 13 unions in the Department of National Defence and with their endorsement. That civilian HR policy was a mandatory requirement of the request for proposals.

    The request for proposals also had incentives in it. The formula for incentives for contractors that did better than the mandatory requirement was the one proposed by the unions. It was inserted directly without modification into our request for proposals. The unions were invited to witness our evaluation and, at their discretion, they could witness the entire evaluation. Certainly some of them took that opportunity and were satisfied with the results.

    So at the end of the day, we believe everything we've done with the union has been very open. We know that the Union of National Defence Employees have some reservations, which they will speak to you about later this afternoon.

º  (1620)  

    Mrs. Elsie Wayne: My understanding, from the information I have been reading with regard to this supply change, is that this company basically dealt with Wal-Mart, I think, when it came to warehousing. Retail-oriented warehousing is only a small part of what military logistics is all about, and this company admits, I believe, that they have never operated an international, multi-faceted, military logistics organization. So both the contractor and DND are calling the supply chain project “a unique experiment”. The company has also “indicated on several occasions that it is their intention to charge DND for storage, and especially long-term storage”.

    In reading what I have here, I am really concerned about whether this is a wise move we are making and if we're going in the right direction. Our people are well-trained. I know they've had cutbacks and there's no question about that. At one time, they thought they might be saving $70 million. Originally, DND estimated the supply chain would save 20% to 30% of existing costs. Now many people inside of DND admit that they don't know if there will be any savings.

    Could Mr. Burton or the captain or someone enlighten us on just what is happening? When we have documents saying there probably won't be any savings, why are we going in this direction? Why would we affect the lives of these men and women who have given their lives to make a better establishment for our military? That's what they've been doing.

    The Chair: Mr. Burton first, or Captain De Blois?

    Mrs. Elsie Wayne: It doesn't matter--whoever wishes to start.

    Mr. Richard Burton: I have just a brief comment. I don't know who has determined there will be no savings, because we have not arrived at that point in the process. I talked about doing something that makes sense, or not doing something that makes no sense, and if there were no savings we wouldn't be doing it.

    Captain De Blois can give you more details, but as far as I know, the contractor is concluding, I think, that there are indeed savings they would be willing to put a commitment to. I just honestly don't know where the notion of no savings has come from.

    Mrs. Elsie Wayne: Well, it--

    The Chair: I'm going to have cut you off there, Mrs. Wayne, because your time has expired.

    Mr. Benoit, for five minutes. That should take us to the end of this round.

    Mr. Leon Benoit (Lakeland, Canadian Alliance): Thank you, gentlemen. Has this contract been let? Has a decision really been made or not?

º  (1625)  

    Capt Yvon De Blois: No, the contract has not been let.

    Mr. Leon Benoit: When do you think--

    Mr. Richard Burton: We have let--

    Mr. Leon Benoit: --the decision will be made?

    Mr. Richard Burton: Mr. Chairman, as I said, we have let the one contract, last August. That was a $5 million contract to work with the company so that they could come in and look at the business case in detail, on which they bid in their initial proposal. That year is still ticking away. They've been conducting a number of what they call “technical visits” to various bases just to be sure that they understand the state of the equipment in the various depots and bases and that they understand the square footage, essentially validating and confirming what was in our business case.

    At the end of this summer--or perhaps in the early fall because we've had to slow the pace a little bit because of the operations in Afghanistan, which has made it hard for the military folks to be able to get us some of the information and data that we need about our various bases--or somewhere in the early fall there will be a decision. The company will come back with an implementation proposal as to whether they think there's still something in this business case that makes sense from their perspective. We will then take that and make our own judgment as to whether we think there's still something. That basic decision has not yet been made.

    Mr. Leon Benoit: How, then, in your document, was the conclusion reached that the savings are estimated to be $70 million a year, that this is what you anticipate it to be?

    Mr. Richard Burton: I'll let Captain De Blois explain that, but I think it goes back over the roughly four years of analysis that we've been doing to develop the original business case.

    Capt Yvon De Blois: We've had an internal analysis, as Mr. Burton said, over a period of two and a half to three years, to really investigate the kinds of services we need, to investigate what's available in the private sector and the kinds of achievements and performances that the industry sector has had, and to come to a conclusion using the benchmarks of what has been achieved in other countries, what has been achieved in industry when they do this type of thing. We've applied those benchmarks to our business. Using those benchmarks, we came up with an estimated value that if we proceeded in this fashion there would be savings in the order of $70 million.

    That was an internal analysis by DND that was sound enough to convince the department and the government to take the next step, which was to select the contractor we wanted to work with. That is what we're doing now. We are working with the selected contractor to make sure that analysis we did internally makes sense from both parties' point of view. When it does, and if it does, then we would present it to the government with a recommendation.

    Mr. Leon Benoit: In regard to the contract that has been let, the $5 million contract to study the feasibility of this--if that is a fair summary of what the contract is for--isn't that unusual? Wouldn't the company normally come in and say, “we're interested in looking at this”, and do that on their own money?

    Capt Yvon De Blois: It was our decision to do it this way. It is part of the risk mitigation strategy that we've employed with the project. I believe that the Auditor General, when he appeared before your committee, made a statement to the effect that he was encouraged by our approach, which is the approach we're doing. Not only did we decide to do this all by ourselves without discussing it with industry, but we've taken the extra step of working with the selected contractor to make sure that we have a win-win situation. This is a risk mitigation strategy we have put in place to make sure that we don't step into this without thorough analysis, both from the contractor's point of view and from our point of view.

    Mr. Leon Benoit: Did what happened on September 11 have any impact at all, not on slowing the process down but on your determining whether you would go ahead with this or not?

    Capt Yvon De Blois: September 11 has perhaps heightened our consciousness of having a more robust military capability and that is certainly what the project is trying to do. We are doing this in order to focus our resources on core military business, to make the product that we deliver to Canadians better. Therefore, initiatives such as this one basically go in that direction and--

º  (1630)  

    Mr. Leon Benoit: What about added security?

    The Chair: We're over our time at this point, Mr. Benoit.

    I would like to thank you, Mr. Burton, and you, Captain De Blois, for your presentations and your responses to our questions.

    Mr. Bachand has a point of order.

[Translation]

    Mr. Claude Bachand: Mr. Chairman, I find we are in the midst of an extremely interesting debate. I understand we are limited by time, but, when I consider how the questions have been allocated, I don't see why the official opposition is not entitled to two questions, whereas the parties on this side are entitled to only one. I wonder whether it would not be possible, with the consent...

[English]

    The Chair: Mr. Bachand, let me clarify. I was about to get to that, but first I want to say goodbye to our--

    Mr. Claude Bachand: What if we decide not to say goodbye to them and keep them here for another 20 minutes?

    Voices: Oh, oh!

    The Chair: With all due respect, Mr. Bachand, the agenda has been set. What I would like to suggest is that we invite in our other guests, in all fairness. We gave these witnesses a full hour. I'd like to give the other witnesses a full hour to make their points.

    If at some point in the future the members of the committee want to invite back these witnesses, we can do that. What I'd also like to do is invite Captain De Blois and Mr. Burton to remain here in the room to listen to the testimony. If they have any comments they would like to make on the testimony of the union representatives, they could perhaps provide us their comments in writing. Likewise, if on reflection the union representatives have any further comments on the departmental presentation, they as well could provide us with their comments in writing.

    If other questions arise out of that exchange of correspondence and out of the presentations we're about to get, then, as I say, we can invite them back. Is that satisfactory to the members of the committee?

    Some hon. members: Agreed.

    The Chair: Thank you again, Mr. Burton and Captain De Blois.

    I'd like to invite Mr. MacLennan and Mr. Cormier to come forward at this point.

    I would also like to suggest to committee members that in terms of the questioning at this point, Mr. Bachand should get the next question in the five-minute round. With respect, we're in one meeting so we're going to follow the questioning procedure for one meeting. We have two sets of witnesses. Otherwise we would end up with a situation where, frankly, the government members who are here and listening would end up with seven minutes per hour of questioning, which I think would be grossly unfair. We'll continue with Mr. MacLennan and Mr. Cormier.

    Gentlemen, let me quickly say welcome to you on behalf of the members of the committee. Without further delay, we'd like to get into your comments.

    Mr. John MacLennan (National President, Union of National Defence Employees): Thank you, Mr. Chair, and members of the committee, for seeing us on short notice. It definitely wasn't short notice for us, as we've been dealing with this for the past couple of months.

    Just as a little bit of background about myself, in my other life I worked in supply and warehouses, predominantly here in Ottawa, for 14 years, so this is very dear to my heart, and particularly in my role as national president representing the members that are going to be impacted by this.

    You have documents that we distributed to you. There's a lot of background information in them. I'm not going to get into that right away. I'll just give you an executive summary of it and read it for the record.

    The Public Service Alliance of Canada and the Union of National Defence Employees believe that the time has come for members of the public and members of Parliament to call on the government to halt plans to contract out essential military supply functions at DND.

    In April 2000, we urged the defence minister at the time to reverse the government's decision. He made it clear that in his opinion the supply chain project should be contracted out because it would save the public money.

    Members of the committee, the world has changed since April 2000. Since September 11, the risks for our soldiers and our public security have increased. In addition, we know more about the contract now and we're even more convinced that it will not save money.

    A contractor has been selected. Tibbett & Britten Group, the British company that won the contract, operates warehouses supporting retail outlets like Wal-Mart and Shoppers Drug Mart. The contractor is arguing that one of the key benefits they can deliver to the Canadian people is commercial best practices.

    The military supply chain is a lot more than simple warehousing. Tibbett & Britten has never operated a military supply chain before. This project is clearly an experiment that will put the Canadian Forces at risk.

    The DND supply chain is already very efficient. Commercial best practices are already being observed. Industry best practices like cross-docking, multi-skilling, delayering, inventory reduction, warehouse consolidation, activity-based costing, and ongoing training are a way of life.

    DND has spent millions of dollars over the past decade to bring the supply chain system up to world standards. At the present time, this means that the supply chain facilities in Montreal, Edmonton, Victoria, and other locations have been certified and have met ISO quality standards. Meeting these standards has meant significant training, review and improvement of processes, and updating of facilities. Current public service employees across this system have been commended on their achievement of these international standards. Why give this investment a certification? DND is choosing now to privatize the supply chain process and to turn it over to the private sector with no experience in military supply.

    Military logisticians have indicated that not doing logistics right will have severe consequences for international peacekeeping operations, war, or the critical role the military plays in national disasters. The supply chain project is advocating risk management without a risk analysis. The most comprehensive risk analysis commissioned only examined barriers to savings and to the success of contractual process. The real risk is too high.

    Originally, DND was advertising that the supply chain project would save 20% to 30% of existing costs. Not many people inside the department would admit that they didn't know if there would be any savings at all. The initial business case identified personnel, infrastructure, and transportation savings that are no longer part of the contract. Internal development, transition, and reorganization costs, which have not been measured, will increase the cost of the project. Other potential savings that were anticipated as a result of privatization will no longer be realized.

    September 11 reaffirms that military logistics is a core responsibility. The existing workforce is flexible and well trained. The contractor's sole motivation is to make a profit using this resource.

    DND is committed to being more accountable to the people of Canada. Distancing spending and purchasing decisions from parliamentary scrutiny and the Auditor General's oversight runs counter to this commitment.

º  (1635)  

    The contractor is unlikely to realize profits that will enable significant reinvestments in new supply technologies.

    DND's reliance on further negotiations with the contractor to identify new savings potential is optimistic given the mistaken assumptions in the original business case, which is already stale. That was 1999, and this is the year 2002.

    The Auditor General recently reported that DND managers are neither committed to nor supportive of the ASD program because they feel very burdened by the process. Senior DND management has come to realize that the initial expectations were too high and that the promised savings have not materialized.

    To break away from my presentation, in regard to the contracting-out principle, successive auditors general have investigated and audited the performance of the contracting-out experience within National Defence. The results have been abysmal. In the present context, there are serious and government-wide concerns with the ability to contract out essential services. In the post-9/11 world of global instability, services related to the Canadian military and heightened security are even more critical. Why contract out another public service that promises yet another contracting-out disaster?

    The need for increased long-term security, consistent corporate knowledge, and adherence to national goals outweighs the need for short-term, private financing. There are off-ramps built into this contract. The government and DND should act now and take advantage of these escape clauses. Concerned Canadians and members of Parliament should work together to stop the supply chain project now.

º  (1640)  

    The Chair: Thank you.

    Are there any further comments, Mr. Cormier?

    Mr. Peter Cormier (Executive Vice-President, Union of National Defence Employees): No, not right now, Mr. Chair.

    The Chair: Then we'll go to Mr. Bachand for five minutes.

[Translation]

    Mr. Claude Bachand: Thank you, Mr. Chairman.

    I believe my colleagues, both Liberal and those on this side of the table, will understand that this has a major impact on people working in our respective ridings. I know what will happen if this thing ever takes effect. People will come to my office in Saint-Jean, and to the offices of my colleagues. They will tell us that they worked part time for the Department of National Defence and managed the supply chain and that they are now out of a job. That's what's going to happen. I'm going to ask you in a moment to suggest what answer I should give those people. What should I tell them? That they're out of a job?

    There are also people who work full time and who will come to me and say that, previously, with the disability clause, they were always paid 100% and that that's now no longer the case. They will be paid for three days, and then they will be entitled to only 67% of their salary under the disability clause. Others will tell me they had a pension with the government and knew exactly what they would be entitled to when they retired. Now the years those full-time employees worked for the department are recognized, but, if they work another 10 years for a new company, that will cost them more money for their pension fund and they will also have to decide where to invest their pension money. I know some of those employees, and I know they are not all financial experts who invest in the stock market every week. They are going to be asked what they want to do with their pension fund starting today. I believe some of those people are going to ask me that type of question.

    Merchants will also be concerned, and this is the entire question of economic impact. Under the current government policy, some purchases can be made at the Saint-Jean military base. I can tell you that a lot of local purchases are made in Saint-Jean itself. What should I tell the merchants who sold things to the base and who will no longer be selling anything when they come to see me? Supply, as we've just learned, will now be done through Wal-Mart, whether it's the Wal-Mart in Halifax or the Wal-Mart in British Columbia or probably the Wal-Mart in the United States. Do you think I can tell the people who are affected by that that they're getting a good deal because Tibbett & Britten Group is a multinational company with annual sales of $2 billion and 36,000 employees in 34 countries? I would like to know your thinking on that because I can't tell my electors that. I'm forced to fight for the moment, but I'm going to make a request shortly and I announce that to you right away, Mr. Chairman. I believe that Tibbett & Britten Group will also have to come before the committee to answer certain questions, even though you and National Defence are able to answer. So what can I tell the people concerned, in your opinion?

[English]

    The Chair: Monsieur Bachand, unfortunately you've only left the witnesses a minute and a half to respond to your long list of questions--

    Mr. Claude Bachand: I'm sure they can do it.

    Mr. Bob Wood: Good speech.

    Voices: Oh, oh!

    Mr. John O'Reilly: Don't fall off your soapbox.

    The Chair: Please proceed.

    I would remind members that if they want answers they will please put their questions quickly. Thank you.

    Mr. John MacLennan: I have a quick answer, Mr. Chair. I heard you too.

    Basically, as I said in my opening remarks, we have more information about this contract now than we did before. The pension that has been endorsed by Treasury Board, which has been classified as passing the test of reasonableness, is one that we have a lot of concerns over. Right now public servants enjoy defined contribution pension plans. You know what your pension value is going to be when you retire at the end of your career. The Tibbett & Britten pension plan describes a new plan that will be at risk in the stock markets, which are going to be the vehicle to generate the pension plan. We have grave concerns about this, and we have actuarial assumptions, and more than one, that support us. Furthermore, with the transfer of the pension value from the public service over to the company, it takes government and taxpayer dollars, public servants' pension plans, and puts them into an investment vehicle managed and administrated by a company. That's the brief answer.

    Something we cannot turn a blind eye to is the concern about defence suppliers in our communities. We have warehouses across this country, in communities big and small, that now supply the bases with anything from nuts and bolts to clothing, towels, spare parts, stationery, equipment, etc. There is no enshrined guarantee that the company is going to rely on local community businesses to continue doing that. They are already in the stream, like Wal-Mart and Shoppers Drug Mart. They could just virtually do that, or rely on the NAFTA agreement.

º  (1645)  

    The Chair: Thank you, Mr. MacLennan.

    I'm going to go to Mr. Price now for five minutes.

    Mr. David Price (Compton—Stanstead, Lib.): Thank you, Mr. Chair. I'll try to keep my questions short.

    On September 11, I was at Trenton on the base. The first thing that happened was that all the contractors were taken off the base and it was closed up. We looked at our DART team, with a huge warehouse, because a big part of the DART team's operation is warehousing. It had to set up to go somewhere. They didn't know where, but they were preparing to go. Therefore, supply chain goes into operations. We had to move beds and bedding and so on down to Halifax for the people who were set off there and in Newfoundland. As I guess was mentioned before, forklift drivers and those types of people had to move equipment out of the warehouses and onto the planes for takeoff.

    What, in your opinion, would happen after this to change that picture?

    Mr. John MacLennan: My September 11 was different from yours; I wasn't in Trenton. We were in the middle of a labour dispute so I was on a picket line.

    Mr. David Price: I know; that's why I asked the question.

    Mr. John MacLennan: I can tell you that on that day, within an hour and a half, I would say, we had all the picket lines down across this country, from every base that picket lines in front of it, and our members went back to work, the ones who knew what they had to do in their jobs--some were in supply and some weren't--no questions asked and at no extra cost to the taxpayers.

    They went to work 24/7 and never batted an eyelash. There were no negotiations about how long they were going to be there. They went to work to do the job they were hired to do as public servants, and that was to support the military in a disaster that we didn't know the full extent of for a couple of days.

    If you're going to have that situation with the private sector you're going to pay for it, because it's outside the scope of their contract. That's a national security issue. That is our concern. Our members delivered; they answered the call of what they were hired to do, the jobs in this department, on September 11 and during the ice storm and in different situations we've responded to here in Canada, like the Saguenay flood and the floods in Winnipeg. They didn't bat an eyelash and it never cost the taxpayers an extra nickel.

    Mr. David Price: Now we'll go to an ASD situation that has worked very well. We'll go right back to Trenton and look at food services there. Do you want to comment on that and on how it has worked out well?

    Mr. John MacLennan: Trenton was an ASD initiative that allowed the food services to compete against industry in a tendering process. We have only two in this department. One is in Trenton in the food services in the kitchen there, the Galley. The other one is the publications depot here in Ottawa.

    This experience was not afforded to the supply chain project. The ultimate service delivery policy from Treasury Board and the department clearly states that when you're looking to achieve savings, before you go to tendering you can go to a “most efficient organization”, which will identify in your business case the savings the department is looking for.

    This opportunity was not afforded to the supply chain project. They went directly to the private sector and said, “Tendering--come and bid on this contract.” It goes from Victoria to Labrador and is the largest privatization initiative the government has ever undertaken. It wasn't allowed to find the savings internally in the department, which is wrong for the people who have supported and who have been dedicated to this department for the years they've been working there.

    We have an example in this department, the 202 Workshop in Montreal, which is critical to the operations of National Defence in dealing with our military equipment. They do modification, repair, and overhauls. Recently, last December, they were awarded “most efficient organization”, and the department will not proceed any further to tender that out. They found the savings internally, and for five years. They now have a workforce morale like I've never seen in this country in my life. They're proud; they're public servants. You don't have to contract out to find the savings. We can do it inside.

    The supply chain project never had that opportunity. It was an autocratic decision made by senior bureaucrats in the department. I remember some of the meetings: it was “whether it saves money or not it's a piece of business we're going to get out of”, and here's where we're at.

º  (1650)  

    The Chair: Okay, Mr. Price, your time has expired. Thank you for your questions.

    My apologies, Mr. MacLennan. I've been advised by my assistant that I've been calling you Mr. McLellan; you don't look at all like our colleague Anne McLellan.

    Mr. John MacLennan: It's okay. My name is pronounced right only when I'm in Nova Scotia, in the Atlantic area. They know how to spell it or say it. I don't know why.

    The Chair: We central Canadians have our drawbacks that way.

    Mr. Godin.

[Translation]

    Mr. Yvon Godin: Thank you, Mr. Chairman.

    I would like to welcome you.

    Earlier, you referred to the Auditor General. You said that, in one of her reports, she was not really certain it was a good thing to do and that further checks had to be made. That's what I was able to understand.

    I'm going to ask you a few questions, and you can answer them afterward.

[English]

    The other witnesses we had from defence, for example, were talking about 1,400 workers, full-time. The other ones were part-time, and there were people all over the area. I'd like to hear your opinion on that. It seems to me that they believe that's where they will make the savings.

    Do you think that if you take away everybody from outside the 1,400 the job can be done and they can still provide the same service to our military? Or is it just something they're throwing in the air today and we'll find out seven years from now that it doesn't work, but it will be too late?

    I'd like to get your opinion on those two things.

    Mr. John MacLennan: If you're looking at savings, the Auditor General did speak to this, and I'll go back to the 1999 report. The $200 million saving that was projected by the Department of National Defence from 40 initiatives that were contracted out never happened. In reality, the department achieved only $68 million.

    The analogy is out there. To save money you have to cut people, so where were they going to get the savings in the supply chain project? They've already contracted out transportation. You heard the department testify earlier that they're not going to do anything to dealing with ammunition or anything critical like that. They're going to continue doing that, so you have to go to the people.

    In our mathematics--and we have some pretty good mathematicians in our organization--some 525 surplus civilians and 275 surplus military add up and correspond to $74 million in savings. That is in the business case the department put together, so this is going to be a people-cutting exercise. I mean, Tibbett & Britten have the mandate to find the savings of $70 million. They're going to keep 100% of their workforce. Yes, we asked for that. We had to. But I don't know where the savings they're going to be achieving will come from.

    It goes back to what the Auditor General said, which was that the Department of National Defence has to get better at analysing the cost of doing of business in national defence. This is a 1999 business case. Realities have changed since September 11. The business case is already stale; by September 1, it's going to be three years old.

[Translation]

    Mr. Yvon Godin: In your report, you say that the world has changed since April 2000. Further on, you state:

º  (1655)  

[English]

    “We are even more convinced that it will not save money.”

[Translation]

You're convinced that this won't result in any savings. If you are convinced of it, you must have proof. Can you explain why this is being given to the private sector simply because you want to wash your hands of it?

[English]

    Mr. Peter Cormier: I sat on the evaluation team as an observer. What I noted from the report or the bid put in by Tibbett & Britten is that they are a large multinational corporation with millions and millions of dollars. They stated, according to their bid, that they were going to bring all this vast knowledge--human resource knowledge, knowledge of warehousing, and everything--to this issue.

    Okay, but now we find that Tibbett & Britten has hived off a special little operation called Mission Logistics, which is going to take a look at and run a supply system within DND. I remember from my economics 100 course that those types of hive-offs are called profit centres. So Tibbett & Britten is creating a profit centre to suck profit from the Department of National Defence and the taxpayers by running supply.

    I remember when DND had a maintenance contract with CP Air, when it had a few planes around. At the time it was a good contract, because it was a small part of CP Air's maintenance, and we were getting the advantage of its hangars, people, and equipment, all the resources CP Air had to fix DND airplanes. We don't seem to be getting that from Tibbett & Britten. What we're getting is a small hived-off operation called Mission Logistics, which seems to have been created as a profit centre for TBG to suck as much money out of us as it can and send it back to Great Britain.

    The Chair: Thank you, Mr. Cormier.

    Mrs. Wayne.

    Mrs. Elsie Wayne: Thank you, Mr. Chair.

    Mr. Chair, our previous presenters said that there was extensive consultation with the unions, that unions were given the opportunity to observe and comment on the process, and that union requests became part of the ongoing and finished project. What I would like to know, Mr. Chairman, through you to Mr. MacLennan and Mr. Cormier, is whether that is an accurate understanding.

    Did you have these opportunities and did you feel that your suggestions were taken into consideration? In your view, is any part of what is there today acceptable or positive ?

    Mr. John MacLennan: To begin with, in April 2000 when we had our last conversation with the defence minister at the time and the decision was made to privatize this, we learned a valuable lesson from Goose Bay: you can't sit down and watch this thing unfold. So we got involved with the department. It's easier to deal with something when you know what's going to happen. We told the department we wanted to be involved in this process for transparency reasons. If you're going to head toward contracting out, we as a union have an obligation to look after our membership and their wages, benefits, and job security.

    Mrs. Elsie Wayne: Sure.

    Mr. John MacLennan: We did that on our own. There wasn't one person in the department who came to me and said, “John MacLennan, what do you want to see in the job offers?” We were told, because we asked the defence minister at the time. We wanted type 1, which means that everybody would get a job and that the wages, benefits, and everything else would be protected. Nothing would change--just the employer. That wasn't possible in this contract.

    So we went to the companies, and we said, “Enhance a type 2 job offer.” It's a seven-year contract with seven-year job security. They're not making a lot of money. The average salary is between $35,000 and $42,000 a year, and I'm being generous in some areas. We went as far as we could in protecting those wages and benefits and job security in the realm of the request for proposals. The pension and the core benefits came after that.

    We were involved in the evaluation process as observers, because--and I think it's clear--we haven't been convinced yet that privatization works in National Defence. We wanted to see that. We're seeing the same things in this contract that we've seen in past contracts. Yes, we were there as observers, we signed non-disclosure agreements, and it was an interesting process, but to this day we are still against privatization. We took care of our membership as far as we could go.

»  (1700)  

    Mrs. Elsie Wayne: When you say you took care of your membership as far as you could go, were all your members who are working now protected through what you were able to work with?

    Mr. John MacLennan: One hundred per cent of the affected indeterminate employees will be offered a job. They will be getting salaries for comparable job offers. If they're forklift drivers now and Tibbett & Britten hires them as forklift drivers, they will get the same salary. If you're working in the warehouse as a stock-picker and you're hired on as a cleaner, you will get the salary of a cleaner, which is lower, because Tibbett & Britten needs a cleaner. For comparable job offers there will be comparable salaries in accordance with the collective agreements that are in place.

    Mrs. Elsie Wayne: Are the seven-year job protection clauses extended if the department takes the additional two-year options?

    Mr. John MacLennan: That will not be extended. As a matter of fact, we have learned--and this is new information we have now--that it will be eroded.

    Initially, in November 2001, when we went to the town hall meetings with the contractor, he came out and said, “Our vision is that in six months we're going to do a transfer of 1,400 public servants from the public sector to the private sector.” The company got into the town hall meetings and then started doing technical visits in various base supply sections, and then said, “Oh my gosh, it might take us up to three years to transfer all these employees over.” That prompted the union to ask this question, “If it takes you two years to hire one of our people and transfer them over from the public to the private sector, how much of that job security is left?” Well, if you remain a public servant for two years, now you only have five years left, and so on and so on and so on. What I'm seeing here is that you're going to have embedded public servants being paid by the taxpayers up until the point the contractor starts to deliver the service they have bid on because the contractor is not ready to take them over yet.

    Mrs. Elsie Wayne: Okay. I--

    The Chair: Thank you, Mrs. Wayne.

    Mr. Wood.

    Mr. Bob Wood (Nipissing, Lib.): Thank you, Mr. Chair.

    Mr. MacLennan, you were talking about town hall meetings. I want to ask you if there are any job guarantees for current employees. Also, what strings need to be attached to them?

    I was looking over minutes from the Union of National Defence Employees meeting you held in Petawawa in February. You indicated that after two years employees may be required to relocate. It's a seven-year deal, but if they have somebody in my riding in North Bay and they need somebody in Mrs. Gallant's riding in Petawawa, this guy could eventually end up there with no recourse. Am I right? How does that work?

    Mr. John MacLennan: No, you're right. I mean, really, the company is not giving anything to anybody for the first two years because the workforce adjustment agreement guarantees a reasonable job offer for two years. If, in two years' time, Tibbett & Britten wants to close Base Supply North Bay and Base Supply Petawawa, jobs will have to be found for the people who are going to be affected by that because they're in that seven-year window. It doesn't mean they're going to move anywhere else, but yes, that's a reality that could happen.

    Mr. Bob Wood: We have Moose Jaw, Portage, and Goose Bay, and Goose Bay is a disaster. We all know that Serco in Goose Bay got the contract and really screwed it up badly by underpaying people. The uprising was so tremendous that DND actually, I think, had to come in and make up some of the difference for the employees--

    Mr. John MacLennan: Five million dollars.

    Mr. Bob Wood: Five million bucks, yes.

    In your opinion, is there any difference between Moose Jaw, Portage, and Goose Bay and what is being proposed now? Don't they have a vested interest in protecting everybody's job?

    Mr. John MacLennan: There is a big difference. Moose Jaw was a sole-source contract worth $2.3 billion over 20 years. Goose Bay was a worst case example, the worst we've ever seen, but it's the best case example that I can use as far as ASD goes. In this particular case the rules are changing every day. We've been to 25 town hall meetings with the company and we've heard different messages as we've gone along.

    There's a lot of uncertainty out there about how this company is going to deliver the services, not just in the community we represent but also in the local communities that are suppliers and also for national security. Where are they going to find the savings?

    You've heard that there are going to be charges for long-term storage of military equipment. I translate that into this case: if I have a basement full of camping equipment and I want to go camping, I hire someone to go to my basement and get that equipment out, I do my camping trip, and when I come back I give the gear to the company and say, here you go, put it back in my basement. I'm paying the person to do that.

    That's what we have here. You have military supplies in warehouses that are charged to the government to store, whether we go on training or peacekeeping-peacemaking operations.

»  (1705)  

    Mr. Bob Wood: Getting back to what my friend Mr. Bachand said, the local benefits will eventually disappear, will they not? Because of the contract and the way that it is put out as far as the tender process goes, it will just eliminate local people, will it not?

    Mr. John MacLennan: It'll eliminate people and the people will move with the jobs, so the people will be leaving the communities too.

    Mr. Peter Cormier: If there's any indicator, Serco is another British corporation. If we take a look at what the hiring practices were before Serco arrived in Goose Bay and after, what we find is that Serco does not buy as much as the base used to buy in the local community. The purchases now are made offshore and brought in. Previously, when the base was a Canadian base, either things were purchased in Goose Bay itself, or they went to St. John's and bought there. So yes, there will be cutbacks.

    Mr. Bob Wood: Peter, has the union done any surveys about how much money will be taken out of each community? Because of this, how much money's going to leave North Bay, or Petawawa, or Camp Borden, or anywhere? Because there has to be a fair amount of money that's going to be transferred out of the community and will never come back.

    Mr. Peter Cormier: The only analysis we have was done by the town of Happy Valley-Goose Bay. They've done an analysis of what happened when Serco took over, of the difference in purchases made in town before and in town after. That's the only thing we have, and it was done by Happy Valley-Goose Bay.

    The Chair: Thank you, Mr. Wood.

    Mrs. Gallant.

    Ms. Cheryl Gallant: Thank you, Mr. Chairman.

    Welcome.

    There seems to be a bit of discrepancy as to whether or not ASD will affect operational readiness. When the troops were dropped off in Afghanistan this spring, they did not have the proper clothing. They didn't have the equipment they needed. They did not have the transportation they needed. They had no food and no water. We relied on the generosity of the United States to see them through. How, if at all, did ASD affect or play a part in that particular situation?

    Mr. John MacLennan: There were irregularities for the troops that went to Afghanistan. I remember when that came up, because I did ask where it was shipped from. It was Edmonton, and a private company was relied on to get some of that stuff over there.

    I clearly remember the GTS Katie, when that ship was coming back from Bosnia. We had to go in there and literally steal back our equipment, because it was a private company returning that equipment to Canada. From our own investigation we were told that because the reality was that a private sector shipping organization was involved.... I mean, the stuff was in the warehouses and the depots anyway.

    Ms. Cheryl Gallant: For Afghanistan?

    Mr. John MacLennan: Yes. It was all coming out of Edmonton.

    Ms. Cheryl Gallant: So was it a matter of not having the lift or not having the logistics, the people in place, to get the material from where it was to where it had to be?

    Mr. John MacLennan: We had the logistics in place in Edmonton where it was shipped from. We had our people working there feeding the supply need for the troops in Afghanistan, and different warehouses also played a part in that, but we're looking at the private sector, which took care of the transportation of that equipment.

    Ms. Cheryl Gallant: I understand that a little better now.

    Part of the reason for this exercise is that the military and the government want to save money. Have the employees or the management of the civilian staffers at Supply and Services tried to save money for the Canadian taxpayers on their own? Have they looked at just-in-time management or anything like that? Describe what, if anything, has been done in that respect.

»  (1710)  

    Mr. John MacLennan: As I said before, we have warehouse facilities and depots that are ISO-certified now. We're doing the industry's commercial best practices right now: cross-stocking, multi-layering, and consolidation of stock. It's already being done.

    Ms. Cheryl Gallant: Have you saved any money?

    Mr. John MacLennan: We have saved money. We closed two depots in 1996, one in Moncton and one in Toronto, and we've consolidated our stocks.

    Ms. Cheryl Gallant: I remember that we used to have several army surplus stores around.

    Mr. John MacLennan: Yes.

    Ms. Cheryl Gallant: Now we don't see that any more. Does that have something to do with the new practices or the best practices that have been put in place? Can we attach a dollar figure to the savings that have already been achieved perhaps because of what staff has suggested to DND?

    Mr. Peter Cormier: The most interesting part of when I was sitting on the evaluation was when we started off looking at the evaluation and I was an observer. I remember sitting there and being told that the supply system was not broken and the reason we were going to ASD had nothing to do with the supply system being broken, nothing; it had to do with the fact that they felt going to the private sector might save money. That was it.

    So now when we look at the business case that's coming forward, there are no savings here and I think that is what the problem is. The supply chain is not broken. It was working and it was functioning well. There's always room for improvement, but that was agreed to by the people themselves who sitting around looking at the evaluations. This is not a broken system. The only thing driving this is saving money and there's no money to be saved, because the things you can save money at are not part of the RFP. Procurement is not part of it. Repair and maintenance is not part of it. Distribution is not part of it. So I don't know where they're going to save money. I think that's really the bottom line.

    The Chair: Very quickly, Mrs. Gallant. You have 20 seconds.

    Ms. Cheryl Gallant: You have mentioned Trenton and Base Petawawa, for example. How exactly would this impact on the community? What's the payroll right now, and what dollars would be taken out of the community? National security is our focus, but impact on local jobs is very important as well.

    The Chair: Can we have a 30-second answer?

    Mr. Peter Cormier: I can't answer that.

    Mr. John MacLennan: I don't have the figures on payroll, what it is right now, but there is a potential there for impact on the community if they start closing down warehouses on the bases.

    I've been to the Wal-Mart warehouse. That one building services 66 different stores in eastern Canada once a week.

    The Chair: Okay, I think we're going to have to wind this up at this point, Mrs. Gallant, in terms of your questioning.

    Mr. Price, five minutes.

    Mr. David Price: Thank you, Mr. Chair.

    I just want to correct right up front something that Ms. Gallant said. As far as food and water were concerned, it was all pre-arranged that the Americans would supply that. That was all done before. There was no lack of any kind.

    We're talking about warehousing as one of the main items in the supply chain. Today we're seeing more and more just-in-time deliveries for manufacturing plants and we're seeing more of that in warehousing operations. It becomes very important.

    Would you say that we're going to need more or less warehousing in the future? Is it going to have to be more centralized or more spread out?

    Mr. John MacLennan: We're already there. I sit on a committee called Operation Accelerate, with the department, where we look at and streamline what's in the warehouses. If it supports the military directly, you keep it in the warehouses. If they can rely on the local economies to support that, that's what they're doing. They now have a system in there called the Milton system, in which purchasers have a credit card and can go downtown to Canadian Tire, Home Hardware, or Grand & Toy, and buy their material there. That stuff is no longer being stored in the warehouses.

    We have streamlined and consolidated the warehouses. We got rid of two depots and some base supply sections when the bases closed, so we're already there. The best practices are there. The ISO standards are there to reinforce that. We don't see that coming in from Tibbett & Britten when we look at their organization in Wal-Mart.

    As a government, you have spent a lot of money already getting to where you want to go, and we're there.

    Mr. David Price: You have been closing down some warehousing. A lot of the warehousing out there is of an older style, let's say, and is not very efficient energy-wise and so on. I think there was a plan already in line and coming down to streamline warehousing more and more. You've sat in on the talks with this company. Are they talking about going in the same type of direction as what has already been started?

    Mr. John MacLennan: That is something we're waiting to see in their business case, which they're supposed to be delivering, hopefully shortly, the service level agreement on how they're going to do that, and--

    Mr. David Price: Okay. They haven't really started--

    Mr. John MacLennan: --they have to identify the savings. We're waiting for that. We're going to be provided a copy of that.

»  (1715)  

    Mr. David Price: But granted, if they're not going to be buying as much locally as before, it means they're going to have to spread out a little more.

    Mr. John MacLennan: Yes, and I'll probably be back here.

    Mr. David Price: If we go back to Goose Bay and Serco--I'm sure that you've been watching very closely what's going on there because it has been sort of the disaster case--what's happening in the senior management? What changes have you seen in senior management there?

    Mr. John MacLennan: In senior management with Goose Bay, do you mean the base commander, for example, or NDHQ?

    Mr. David Price: No, I'm talking about Serco people.

    Mr. John MacLennan: Oh, on Serco people, there is still labour strife there. Senior management was removed. They did what I classify as a Lee Iacocca on the place: they got rid of the 25 people who had the corporate knowledge and kept one person out of the 25. That seemed to ease the situation, but the damage from what happened there has gone so deep psychologically; it will probably go away through attrition as long as that's the current employer.

    One of the managers was brought back recently because right now Goose Bay is going back out for re-tender. That's an interesting concept. It's a failed ASD project, but yet we're going to continue re-tendering it. That's where it sits.

    Mr. David Price: Under the same specs?

    Mr. John MacLennan: Yes.

    Mr. David Price: Are they going to give a chance to the employees--or of course what employees are left--to take a run at it again?

    Mr. John MacLennan: The request for proposals that's in draft right now is very vague as far as the human resources component of that contract. We've put in some submissions to the department that we would like to see, comparable to what we asked for in the supply chain project. I haven't had a response yet.

    Mr. David Price: Because there's no question that the last time through, the second choice, and a very close second choice, was the employees.

    Mr. John MacLennan: That's right. There was an in-house bid that competed against them.

    Mr. David Price: Yes.

    Mr. John MacLennan: Of course, Supply didn't have the opportunity.

    The Chair: Thank you, Mr. Price.

    Thank you, Mr. MacLennan.

[Translation]

     Mr. Bachand, you have five minutes.

    Mr. Claude Bachand: Other concerns have come to my mind since we spoke this afternoon, and I would like to have your reaction to them.

    From the start, we have heard that you were trying to combine the military aspect with the best practices of the private sector. It seems to me that, when you start doing business with the private sector, you have to play the private sector game.

    Here I have the history of Tibbett & Britten and all the acquisitions and take-overs it has conducted since it was founded in 1958. I also want to remind you, because I believe you must know it, that the initial contract with Tibbett & Britten to start the negotiations was one against two other major companies, Raytheon and Honeywell.

    If the government ever contracted its supply chain to Tibbett & Britten, what would happen if Raytheon took control of Tibbett & Britten and decided not to continue the contracts? Tibbett & Britten and Raytheon are listed on the stock exchange, and the Department of National Defence must understand that, when you play the private sector game, you have to play it right to the end. If Honeywell decided in three years to take over Tibbett & Britten and not to honour the contract, we would have some legal problems. I would like to have your opinion on that.

    I would also like to have your opinion on the pension fund. I don't want to exaggerate, but I wouldn't want us to have another Enron on our hands. If we have a president who is very convincing, who regularly meets with his employees and who tells them that it would be in their interests to invest in their pension fund within the company itself, we might well have problems, and I'm not sure we have all the legislative instruments to control that.

    I would like you briefly to give me your views on those two concerns.

»  (1720)  

[English]

    Mr. John MacLennan: Should there be a merger between Raytheon and Tibbett & Britten, that is something that is brand new and would be very interesting.

    I am fearful. If there's an ASD contract out there that fails before the end of the contract, what's going to happen to the people? I don't know the legalities if Tibbett & Britten are awarded phase 2 of the contract and are taken over by somebody else. I'm not sure what the legalities are, but I would have concerns.

    We did talk to Raytheon, which did bid on this contract. Like Tibbett & Britten, they came in with comparable job offers. I don't know what their business case would have been as far as delivering the service is concerned and where they would have found the savings. I can't represent that part of the question properly without knowing that. My concern is that if the contract fails you'd have 1,400 people who used to be public servants who would then be what? That goes for any other contract that's been privatized. The government will have to take back those services because the work will still have to be done--

    Mr. Claude Bachand: Exactly.

    Mr. John MacLennan: --but are they going to take back the employees who were previously public servants? I don't know. There are strict regulations in the Public Service Employment Act for hiring, which we're working on right now.

    On the issue about the pension fund, as I said earlier, they're using Clarica as the company that's going to be doing the administration of this pension fund. It will be the investment vehicle.

    There's no defined pension plan at the end of our members' contract. This is not a young workforce. You have a middle-aged workforce here, and it ties into the core benefits. When you work for this company and if you're sick, for the first three days you'll get 100% of your wages, which will be taxable. After that, your wages will be reduced to 67%, which will be taxable. That will have an impact on the pension plan. That will cover you for up to 26 weeks. After the 26 weeks, you'll go on a long-term disability plan, which will also be 67% of your salary. Then we'll have employees who are home sick and will be under a lot more stress because they'll be getting 67% of their salary, which also will affect their pension.

    Mr. Claude Bachand: That's it.

    The Chair: There are only 20 seconds left, so I'm going to go back to Mr. Price.

    Mr. David Price: Originally there were five bidders on the contract. Were there any bidders you were more comfortable with than the one that came out?

    Mr. Peter Cormier: No.

    Voices: Oh, oh!

    Mr. Peter Cormier: I sat there and--

    Mr. John MacLennan: You've used up your three minutes quickly.

    Mr. Peter Cormier: They were all multinationals. Two were Canadian, two were American, and one was British. They all presented a similar face and complied with the request for proposals.

    Mr. David Price: Of your members, how many would be former military?

    Mr. Peter Cormier: In the supply chain--

    Mr. John MacLennan: A lot.

    Mr. Peter Cormier: --there would be a lot.

    A voice: A couple of hundred.

    Mr. Peter Cormier: No, when you say a lot--

    Mr. David Price: Percentage-wise?

    Mr. Peter Cormier: Maybe 15% to 20%.

»  (1725)  

    Mr. David Price: Okay. I have another short question. You were talking about charging for warehousing, which could be coming down the road. Whose warehouses are they going to be charging?

    Mr. Peter Cormier: The plan that has been outlined at the town halls, which I've been able to glean, is this: because warehousing is a cost, how do you make money? In the private sector, it's a cost to everybody, so how are you going to make a profit? The profit's going to be made based on storage, and the thing about DND warehousing is that there's a lot of storage. If you go to a place like Wainwright, which is a training base, 90% of the stuff is storage. The boys come in, grab their guns, tents, hats, and gloves, and off they go to the field. They do what they do and then come back and drop it off. At CFB Toronto, at least 100% of that stuff is just storage because it's all for the cadets in the Toronto area. The supply system there is just storage.

    In some depots things move in a lot, but a lot of that stuff is storage. It's a national resource. It's there for the ice storms, the floods, the downing of the Swissair.... That is there for a whole pile of stuff, so you have all this storage stuff. It's good for them because that is part of being a supply system on the part of National Defence, but what we are going to be doing is that the taxpayer is going to be paying for storage in buildings they own and maintain. That's really what we're talking about.

    Mr. David Price: May I ask another one?

    The Chair: Very quickly, as I know that Monsieur Godin wanted to ask a brief question as well.

    Mr. David Price: In those particular buildings, will the contractor then be responsible for R and M and for energy costs and so on?

    Mr. Peter Cormier: No.

    Mr. David Price: Thank you.

    The Chair: Thank you, Mr. Price.

    Monsieur Godin.

[Translation]

    Mr. Yvon Godin: Thank you, Mr. Chairman.

    I don't know whether you have the answer, but you said earlier that Defence employees, whether it's Saint-Jean-sur-Richelieu or in various other places in Canada, sometimes buy locally. Would it be possible for a contractor from England, for example, to bring in goods directly from his country or from other countries and to store them in large warehouses? From what I understand, that's not happening right now.

[English]

    Mr. Peter Cormier: I don't know.

    Mr. John MacLennan: That is something that is undetermined, but the fear is there because we've seen that--

    Mr. Yvon Godin: Like Wal-Mart.

    Mr. John MacLennan: Like Wal-Mart, and we've seen that in Goose Bay. They didn't rely on the local economy.

    The Chair: Thank you, Mr. Godin.

    Mrs. Wayne, do you have any further questions?

    Mrs. Elsie Wayne: I just have one, which is more or less a statement, Mr. Chair.

    Certainly I think the major concern of most of us around the table is to do what's best for our military. There's no question about that. I'm sure that all of our men and women in the public sector want that as well.

    Having heard the presentations here today, Mr. Chair, we have major concerns. We've heard from both sides here about what direction they are going in. I think we really need to take into consideration what's been brought before us today. I certainly have a concern when it's a company that deals with Wal-Mart, I'll tell you that. When I look at the smaller areas, knowing the way things are going, I would say that what would happen in those smaller areas is that the men and women who work in the public sector and through the military in the smaller areas at the present time, all of that will be moved out and it will be up in Toronto.

    I can see Mr. O'Reilly would love it to go up to Toronto and everything would be stored there, but there's no bloody way--

    Mr. John O'Reilly: I'm not in Toronto. I don't even have an armoury to--

    Mrs. Elsie Wayne: I do, but anyway, I'm telling you right now--

    The Chair: I think that this point--

    Mrs. Elsie Wayne: --there's no way.

    The Chair: --is as good as any to wind up this meeting since we are at 5:30.

    I'm sorry, sir, you're--

    A voice: I was going to ask if I'm out of order, but--

    The Chair: Yes, you are. Quite simply--

    A voice: --I did have a concern.

    The Chair: I'll tell you what, sir. Why don't you raise your concern with me after the meeting? We can talk then. We have an agenda here and we're going to stick to the agenda.

    At this point we're going to thank our guests from the union, Mr. MacLennan and Mr. Cormier, for being here and providing us with their comments.

    I would ask that the researchers expedite the transcript of this meeting to both parties, if they can, so that if either wants to comment further on the presentation of the other they will have an opportunity to do so. We will undertake to provide those comments to all the members of the committee. It seems as though there's an interest in pursuing this further.

    We have had an invitation to go to Happy Valley-Goose Bay at some point. We can discuss these things at the steering committee meeting. We'll take it up at that time.

    Again, I'd like to thank all the witnesses today for their comments and for their responses to questions. The meeting is adjourned.