I'd like to begin by acknowledging that the land on which we are gathered is the traditional unceded territory of the Algonquin Anishinabe people.
[Translation]
Good afternoon.
My name is Alexander Jeglic, and I am the Procurement Ombudsman.
I'd like to thank the chair of the House of Commons Standing Committee on National Defence for inviting me to be here today to participate in the committee's review of the impact of Canada's procurement process on the Canadian Armed Forces.
[English]
I'd like to start by explaining my office's role in federal procurement, as this is my first appearance at this committee during my tenure as procurement ombudsman.
The Office of the Procurement Ombudsman opened in 2008, with a focus on providing Canadian businesses, mostly small and medium-sized, an avenue of recourse for procurement and contracting issues.
My office operates at arm's length from all other federal organizations, including Public Services and Procurement Canada. While I report to the , the minister has no involvement in my office's daily activities or the contents of my report. The minister is required to table my annual report in Parliament.
[Translation]
My office is a neutral and independent organization of the Government of Canada. My mandate covers all government organizations, except for Crown corporations, the Senate, the House of Commons and certain federal security agencies.
[English]
Specifically, my legislative mandate is as follows.
First is to review complaints from Canadian suppliers about the award of certain federal contracts below $30,300 for goods and $121,200 for services.
Second is to review complaints regarding the administration of certain contracts regardless of dollar value. We rarely receive this type of complaint, but when we do, it most often pertains to late payments or non-payment.
Third is to review the procurement practices of federal departments to assess fairness, openness, transparency and consistency with laws, policies and guidelines. These larger systemic reviews examine the way in which federal departments do their contracting in general and often involve the review of multiple procurement files.
In terms of good practices to ensure fairness, openness and transparency in federal procurement, my office has identified three highest-risk procurement elements. We use these risk elements to establish three lines of inquiry: one, the establishment of evaluation criteria and selection plans; two, the bid solicitation process; and three, the evaluation of bids and contract awards.
These systemic reviews have two important functions: First, they identify areas in which departments can take concrete steps to improve the overall fairness, openness and transparency of their procurement practices; second, they point out good practices that can be emulated by other departments. Any recommendations made in these reviews are designed to improve practices and do not focus on individual complainants or winning and losing bidders in the same way that reviews of specific complaints do.
In 2018, my office put in place a five-year procurement practice review plan, which identifies and describes the reviews to be conducted by my office. The planned practice reviews looked at the highest-risk procurement areas as defined by our extensive environmental scanning.
As part of the 17 systemic reviews conducted under the five-year plan, my office conducted a review of the Department of National Defence, which was published on my office's website in May 2022. We made several recommendations regarding DND's procurement practices that required improvement and identified some good practices. For example, an area of improvement that was identified included inconsistencies in the bid evaluation process, including missing evaluation guidelines and results and incorrectly awarded contracts. An example of a positive observation that was made was that DND consistently used standardized solicitation documents, which contributed to the simplification of procurement processes for both Canadian businesses and DND officials conducting procurement. We made six recommendations for improvement to DND and will follow up next year to assess the implementation status of these recommendations. DND agreed with all of our recommendations.
My office also offers dispute resolution services with the help of certified mediators from my office. Either a supplier or a department can request our mediation services, and both parties have to voluntarily agree to participate in order for the mediation session to take place. Mediation is a highly successful and effective service that my office offers, which unfortunately remains underutilized by federal departments. There are no dollar value limitations associated with our mediation services, and we can mediate contracts valued at $6,000 or $60 million. Our mediation generally requires only a one-day mediation session, and these services offer a quick, inexpensive and administratively less burdensome process to litigation.
My office also conducts research studies on important issues in federal procurement. In 2018, we launched an initiative called “Knowledge deepening and sharing” to provide information and guidance to suppliers and departments. We've published a total of nine KDS studies, and some of the topics we've written about to date include emergency procurement, the chief procurement officer and late payments.
[Translation]
In addition, my office plays an active role in diversifying the federal supply chain. To date, we have hosted five annual summits, bringing more than 2,000 indigenous and diverse business owners together in the same room with representatives of government and private sector organizations that provide services to help these businesses access federal contracts.
[English]
OPO has become an important component of federal procurement, and we hope to continue to serve stakeholders in a way that brings positive change. This requires our office to be proactive in some areas, but, unfortunately, budget implications currently prevent us from continuing some of this important work.
My office has been operating on its 2008 budget for the past 15 years. For the first time, last fiscal year we sought program integrity funding to address critical gaps in delivering on my legislative mandate and on government and ministerial commitments. This request was unsuccessful, but we have again put forward a new ask to address our funding shortfall in future years.
We are acutely aware of the need for fiscal prudence and efficiency at the federal level and have been working diligently to ensure our operations are as lean as possible to best deliver on our mandate; however, as a result of my existing budget and the inability to hire additional staff, my office has had to curtail several vital activities for the current fiscal year and beyond. These cancelled activities include conducting follow-up reviews to determine if my recommendations for improvement have been implemented by departments and providing information and guidance to Canadian businesses through KDS research papers.
This year, we are once again seeking program integrity funding. Without this additional funding, OPO will become a reactive organization and will no longer be able to effectively provide key services necessary for the improvement of federal procurement.
I'm pleased to see the growing support of my office from the various House of Commons committees. I'd like to thank the national defence committee particularly for the invitation to be here today.
I welcome all your questions.
Thank you.
:
Sure. I want to clarify that by “offshore” you mean international obligations.
Mr. Andy Fillmore: I do, yes.
Mr. Alexander Jeglic: Okay.
Essentially, I think this is where the NSE, the national security exception, becomes particularly relevant as part of the discussion, because the NSE, when invoked by the Department of National Defence when doing procurement, disarms certain obligations under international free trade agreements. It doesn't do something similar with domestic requirements, so there are certain requirements that still exist under the government contracts regulations.
That's one of the big differences, and that's not the case in the United States. In the United States, what happens with the invocation of the national security exception is that it actually both disarms free trade obligations and, equally so, creates a disarmament of the national FAR and DFARS.
:
Absolutely. Transparency is kind of the offset to the risks you've identified.
That's where documentation matters. I answered a previous question about documentation, but it's incredibly important as you make decisions throughout the process that you document these decisions. If you make a decision that there is a rightful application of an exception to competitive procurement, in many instances that may be accurate. However, if you don't document those reasons, it's very difficult to know why a contract has been directed.
I can't underscore enough the need to document all decisions associated with procurement processes and then make transparent the outcomes. If the Canadian public no longer trusts in the federal procurement system, we all lose out. That's something that I've emphasized in our most recent annual report, which is that I do feel there is a risk as a result of a general lack of transparency.
The final thing I'll say is just on the national security exception. There are obviously inhibitors to transparency associated with the invocation, sometimes rightfully, but other times, when there's a blanket application of the national security exception, it might do more harm than good in terms of creating a belief that things aren't being done appropriately.
Transparency is the offset to some of the risks you've presented in your question.
Thank you, Mr. Chair.
I would say, embed a TB analyst as part of the major projects procurement teams, to raise any issues in real time and reduce TB subrequirements.
There's the payment of partial bid costs for compliant bidders for major projects. That goes to address some of the things we were talking about before about 34% of competitive processes having only a single bidder.
Create clear accountabilities between all of the respective actors. We know that's a complicated system.
Reduce the number of mandatory criteria to only those that are essential. We see that when mandatory criteria are overly restrictive, that creates a smaller pool of available bidders.
Use accepted exceptions to competition where appropriate. Do not make decisions in fear of litigation, and allow the dispute resolution mechanisms to play their roles. You heard me mention using the CITT appropriately. Mimic what worked during times of emergency procurement, which was centralization versus regional procurement.
Increase delegations.
Here's another area where our office can be particularly relevant. Use a hackathon-style event. “Hackathon” is a term my children use. I'm not sure I'm using it appropriately, but I'm pretty sure I am. Use that to bring together all the actors. You've brought forward many witnesses before you, each of whom has their own incentives for being here. Bring all of those actors together over a weekend to address critical issues. Those are the types of things that are done during a time of emergency, and defence procurement requires something similar.
Prioritize the creation of a government-wide vendor performance regime. Again, I can't underscore this enough. We do not have a government-wide vendor performance regime. We want to work with the best suppliers possible. You do not want to use the award process as a mechanism to avoid dealing with poor suppliers. The award process was not designed to play that role. We need a vendor performance mechanism that will reward good performers and not reward poor performers. It can't be limited to a single department; it has to be more appropriate across the board.
Engage industry in non-project-specific discussions, including capacity in Canada assessments. We had a previous question about Canadian capacity. I think it's really important to have frank dialogues about what is possible with Canadian industry currently, and what's possible in the future. That's why having that trusted pipeline of projects is so important. I heard industry say that they want contracts in hand. If you have a trusted pipeline that you can rely on, it may actually meet that need.
Again, there was a question about best practices in foreign jurisdictions. That's something you need to continually refresh yourself on. There are other allies working diligently to ensure that defence procurement is working as efficiently as it can within their countries. Get timely information from our allies.
Require multiple procurement-related courses for RMC graduates. If I could have one global theme as the take-away message, it would be that we need to recruit and invest time in those recruits coming out of university now. The reason is that I actually heard DND say it's a nine-year incubation period to be able to work on complex projects as a PG. That's an incredibly long period of time. If we invested more time and effort in university-related programs that could have sophisticated, complex, defence-related procurement as their focus of study.... We know there are jobs that exist. The question is creating more of these programs.
There is a program like that which exists at the University of Ottawa and is run by the Telfer program, but there need to be more of them. That's the issue. It cannot be isolated to one program. I know that traditionally—again, I don't want to speak out of turn—we were sending people to participate in programs in Australia. We need to garner these programs in Canada and establish them.
On the RMC specifically, procurement ultimately impacts everyone, so having every graduate coming out of RMC have not just a basic introductory course on procurement but advanced knowledge of procurement will help them, regardless of what stream they pursue at the RMC.
I greatly appreciate the opportunity to present you with that list. Thank you.
I appreciate the ombudsman coming, and I appreciate all the recommendations. That does make our task a lot simpler for us, especially when we start looking at defence procurement.
My understanding of your study, from what you just said, is that you only concentrated on the ones that National Defence had final authority on. I'm anticipating that you didn't look at some of the great big contracts like shipbuilding, fighter jets and others that are involved at three or four different departmental levels. Your recommendation is along the line of what we can do to streamline that process among National Defence, Procurement Canada and Treasury Board.
First of all, I find it striking in your report to National Defence.... You make your recommendations. Unlike what I've seen in responses from the department to the Auditor General or to the defence ombudsman, where they either accept or reject the recommendation, in almost every one of yours, the response starts the same way. It's an almost identical response: “We will review our processes and look at the management action plan.”
Are you satisfied that this is good enough to deal with recommendations that you made in your ombudsman's report?
:
Thank you, Mr. Chairman.
Good afternoon, committee members. Thank you for the opportunity to appear before you to inform the committee’s deliberations by offering comparative insights from the U.S.'s experience with procurement.
My name is Alexis Lasselle Ross. While I currently own a consulting business that advises companies as they navigate the defence market, I've spent 20 years in government working on national security policy. During my time in Congress and at the U.S. Department of Defense, I spent several years instituting reform in government programs, most recently in defence acquisition.
As a congressional staffer, I wrote legislation to change the focus and outcomes in weapons procurement. I continued this work in the Army, as the presidentially appointed deputy assistant secretary to the Army for strategy and acquisition reform, where I worked to change the policies, processes and responsibilities in the Army’s acquisition enterprise. Through these experiences, I have gained an understanding of the necessity, obstacles and benefits of acquisition reform.
It is my honour to appear today before the committee to offer my observations on the procurement process. While I cannot speak with regard to the Canadian procurement system or its impact on the Canadian Armed Forces, I can explain the American experience in weapons acquisition and our attempts to reform our own defence acquisition system to yield better outcomes for our military forces.
There are several well-cited pitfalls of the U.S. defence acquisition system. For example, it can take 10 or more years to field a major weapon system, and the DOD’s procurement processes typically do not adapt quickly to emerging threats or evolving technologies. Consequently, there have been dozens of initiatives to reform acquisition policies, processes and organizational structure over the last 50 years.
Every several years, a surge of interest and activity emerges that leads to notable changes. As in every kind of public policy debate, there is a proverbial pendulum that swings between what is important or which side of the debate triumphs. In acquisition reform, the pendulum usually swings between optimizing cost, schedule or performance when procuring weapon systems.
Currently, the American defence system is in an era that promotes speed and innovation. Starting in roughly 2015, we have undertaken structural changes, such as the realignment of decision-making authority to accelerate the pace of programs' advancement through the process. We have made procedural changes, including creating new pathways in the process that eliminated some of the procedural requirements for programs and sped up their progress. We have expanded the use of the more flexible and, therefore, more rapid contracting methods.
With regard to innovation, we have taken steps to attract non-traditional vendors into the defence market, such as the technology companies from the Silicon Valley tech hub here in California. This has consisted of the creation of organizations designed to perform outreach to and guide these non-traditional vendors as they enter the defence market. We have also created special authorities to incentivize the acquisition workforce to utilize these new, non-traditional entrants.
In closing, there are three considerations that I would offer to anyone undertaking acquisition reform.
First, any major reform effort must be bolstered by a sound implementation plan. Reform is really just a good idea until it has been implemented. The majority of the work occurs when the changes are executed and the system adapts to the new paradigm. Really, it entails changes in the organization’s culture, which take, of course, a lot of time, so it's definitely worth being prepared for a long endeavour.
Next, the extent of the success of acquisition reform is inherently limited by the faults of adjacent systems that impact acquisition outcomes. For the U.S., these are the requirements system, which determines what to buy, and the budgeting system, which resources the procurement. After a few years of designing and then implementing acquisition reform in both Congress and at the U.S. Department of Defense, I came to the conclusion that acquisition could not go any faster without changes to the budgeting process, which is another rigid, slow and overly prescribed process.
Finally, one must anticipate a change in focus in the near future. Just when you feel that the previous changes are taking hold, something will inevitably happen, such as a sudden involvement in military operations that shifts priorities or a change in the political party in power. Again, with these, the focus shifts to a new priority. As I said before, in acquisition it usually means shifting the priority between optimizing cost, schedule or performance.
I applaud the committee for its interest in improving the Canadian procurement system, and I hope that my testimony proves useful to that endeavour.
I look forward to your questions.
It's an interesting challenge to be asked to talk to you this evening. It's evening for me; obviously, it's afternoon for you.
What I would like to say, first of all, is that I observe that Canada, like Australia, the United States and certainly the United Kingdom, has a kind of constant effort to improve its acquisition systems. This is to be applauded, but it does say something about how difficult it is, actually, to get everything right.
One conclusion that I reached quite a while ago—and it relates to something with your last speaker—is that different things have to be bought or procured in different ways and need different acquisition strategies to deal with them. It's quite a complex challenge to specify, but you don't buy office desks in the way that you buy combat aircraft. It builds on that.
Well done, Canada, for trying to make things better, but you're in a club where defence acquisition is a soap opera rather than a novel with an ending.
I'm not going to talk too much about the British acquisition system. I'm happy to take questions on it. I did put some written paper to you and I'll just underline the headlines from that.
One is that there's a role, I think, for expectation management. People have extraordinary expectations that defence equipment can be delivered in 10 years' time with a particular performance for a particular amount of money. On the way here, I just tested my views with a cab driver. I asked him if he'd had any work done on his house. He'd had various jobs done, including a new bathroom. I asked him if it was on time. He said it wasn't and that it took 10 days, not five. I asked him if he wrote to his minister and he said hadn't. When our equipment is a year or so late on a 10-year program, we have to appreciate how difficult these things are. I think there's a role for expectation management.
I think there's a fundamental challenge now to defence acquisition at the high level. I will put it in these terms. We are accustomed to defence acquisition processes being very deliberate and careful. There's a kind of formal way through where you specify a requirement, you think of an acquisition strategy and then you implement it. Eventually, you sign a contract and all that. It takes a long time, as everybody in this business knows.
The reality of the world in which we are living now is that technology is moving very quickly in many important areas. Also, world politics are moving very quickly in important areas. Therefore, the idea that you can write a really useful requirement now against which you'll sign a contract in four years' time seems absolutely ludicrous.
The way in which it's moving—reluctantly, I must say, in some parts of the U.K., at least—is that there's a need for a closer dialogue between industry, which knows more about the technology, and the government, which knows more about needs. They talk together and the relationship between them becomes more important than the contract that may exist. It's a big and radical way of moving, but when you think of the speed at which.... It's the sort of way in which we operate with urgent operational requirements, but it's not the sort of way in which we usually work with major platforms.
There's a real challenge for defence acquisition in ambitious countries that ask how they can make their acquisition system move at the same rate as technology and politics are moving. Now, I know that Canada is trying to go more quickly with acquisition processes, so there's awareness of this. However, I think one particular point is that if you go for fixed requirements, then those requirements are going to become unsatisfactory to your military users before you've had a chance to deliver the system. That means contract changes and all that.
The next point I want to make is that Canada does not—nor does the United Kingdom—buy military equipment to achieve a single objective of military capability. It's going for prosperity and for improving wealth distribution within the country. In the U.K.'s case, it's trying to keep the union together and help cement the union. We place work in Scotland to help to do that because it binds the Scots closer together.
We have procurement for multiple objectives. We have debates now about what is meant by “value” and what the dimensions of value are. It's much more than whether a general in a division thinks it's a very good piece of kit. That's an important consideration, but it's not the only consideration. Foreign policy considerations can also feed in.
:
I'll take the first question first.
It's a very good question, Mr. Bezan. I think there is a great importance that we place, especially currently, on domestic manufacturing.
Starting in the nineties, we made some choices. These were choices that were made by the defence department and others that essentially amounted to exporting quite a lot of our production. Our domestic manufacturing facilities and capabilities—and therefore workforce—dramatically dwindled in the ensuing decades.
Here today, we find ourselves in a situation where, for much of what we need for things, such as the materiel we're supplying to Ukraine, we've found that we did not have a strong industrial base here in the U.S. To ramp up production on something that has been turned off or turned down is a very big challenge. As you know, industry cannot turn on a dime. Starting up a production capability, starting up a facility, can take 18 months to two years. We're finding that we're now having to take steps to try to reverse those trends.
In some cases, it may not be entirely practical to do everything on U.S. soil, so of course we have to rely on nearshoring or friendshoring, these other concepts of working with allies and partners, which also have additional benefits of working together with a common goal and ultimately having greater interoperability of our systems and other things. There's a great opportunity for that.
To your point about my opening comments, on trying to seek innovation domestically where it exists, I think we—and I would presume Canada, the U.K. and others—are finding that one of our greatest strengths in the western world is that we have incredible innovation in engineering and a lot of scientists and tech talent that we need to leverage. We're attempting to do that now. When we look at near-peer adversaries, we're seeing that they don't have quite that talent, so we need to make sure we leverage this while we can, before those other forces do catch up.
We're also seeing—
:
One hesitates to make a recommendation to another country in different circumstances.
I'd go back to my comment in the very beginning on thinking about buying different things in different ways. We practise that very heavily in the United Kingdom, without doing it explicitly.
For our next combat aircraft, under GCAP, which we're doing with Japan and Italy, the companies are chosen, the partner countries are chosen and they're working as one team to develop what they know must be a competitive product. The competition comes not from within the top companies, but from having to compete in the future with China, which is in the export market, whatever the U.S. has to offer, and so on. That's a once-in-30-years contract, where there are a very small number of companies that are going to do it.
In other areas, like if you're buying rifles, a traditional open competition will work perfectly effectively. There are lots of people who sell them to you. You don't have, through life, big update costs, obsolescence management costs and so on.
You have to think through whether you have the right acquisition process for the particular thing you're buying. This is a hard thing for commercial officers within defence to get a grip on. What is suitable in one area may not be suitable elsewhere.
It's a very limited answer, but I did my best in the period allowed.
:
I'll be very brief and offer just one thought.
Without knowing the other country systems, I don't know if, by comparison, there are things that work well here that should be in place there. What I can do, though, is suggest something that doesn't work well in our system and that I would suggest you try to avoid.
Our system is very statutory-based. It's highly technical. Many of the rules are based in procurement law. Every time something goes wrong, Congress writes a new law. You could think of it as barnacles on a ship. They keep getting added and are never taken away. If you look at our United States code, it's like a graveyard of past acquisition mistakes.
The only problem with that is that it's a lot to keep up with. It makes it very technical and hard for the workforce to adapt to and keep up with. We have to have a very professional acquisition corps, which requires a lot of training and makes it very hard for them to be creative, dynamic and agile.
Our greatest success in recent reforms has been finding pathways to try to streamline this [Technical difficulty—Editor].
The situation in Ukraine has been enlightening for the defence department, in terms of how it manages its relationships with industry in particular.
If we look at the example of munitions and the munitions industrial base, what we're seeing today is that much of the materiel we are utilizing and providing to Ukraine—such as 155-millimetre rounds of artillery—are things we don't buy consistently or spend a lot of money on, compared with the rest of the materiel we purchase throughout the Department of Defense.
The consequence of that is an inconsistent demand signal to the defence industry. Without purchase orders and money coming in on contract, companies will not usually invest their capital in facilities to have the production capacity for something the Department of Defense is not buying regularly. As such, they optimize their production lines. With the goal of efficiency and value, they ensure they optimize and reduce these lines. The effect is that, when we ask them to suddenly produce more—in this example, 155-millimetre shells—they are not able to immediately start producing more. It takes time to have that throughput go through the industrial base.
In this case, the ramp-up was several months. At the beginning of the response to Ukraine, it was well cited in news articles that some munitions were taking upwards of two years for their estimated arrival time. The Department of Defense was concerned with that and looked very closely at why that is.
As I said, there is often a symbiotic relationship between the defence-industrial base and the customer—in this case, the Department of Defense.
:
I'll speak to your point about layers and simplifying or streamlining that.
In the Department of Defense, our program managers, those who are responsible for managing the program as it goes through the process, sought in this last round of acquisition reforms to simplify the layers and to delegate some of the decision-making authority from the highest levels of the Pentagon down to the next-highest levels. Rather than having the Secretary of Defense level making decisions on certain programs, we have now delegated that decision-making authority to the secretaries of the military departments: the Army, Navy and Air Force.
We found that when the program managers had to go all the way up to the Office of the Secretary of Defense for reviews and approvals—of course, going through their respective military service department—it created an additional amount of administrative requirements, justification documents and, frankly, just time in the Pentagon, briefing senior leadership twice: at your service level—in other words, the Navy, Air Force and Army—and then again at the Secretary of Defense level.
We found that great streamlining could be accomplished, and it's currently in progress. We've had that for about six or seven years, and it certainly has decreased some of the time and burden of the process.
:
The Upholder procurement process actually predates my awareness of the situation.
I can tell you how we are looking at procurement for submarines. We have two things about procuring submarines. One is that we left a big gap between procuring the last of our nuclear bomber fleet and the attack submarines. The result is that it cost us a fortune. We really learned.... Employment at the yard went from 17,000 to 3,000 and when we tried to start building Astute submarines, we found there were lots of difficulties because of skill shortages.
The second thing is that when we look to the current generation of submarines that we're building, which is the new Dreadnought class of nuclear weapon submarines, we're doing that from the beginning with an alliance between the one company that can build them and the government, the navy and the procurement authorities. It's called the submarine delivery alliance and they are working together. They have a generous budget, you might say. It's a significant sum of money. They report annually on the progress being made.
It's another of these areas where we know we can't have a competition for who can build a nuclear submarine, so what we can do is get the.... The parties know the importance of it, even down to the workforce.
That's how we're doing submarines currently.
:
Thank you, Mr. Collins.
On behalf of the committee, I want to thank both of you for your testimony. Particularly, I want to thank Professor Taylor, who is five hours ahead of us.
I should imagine that your next stop is bed.
An hon. member: Fish and chips at the pub.
The Chair: Oh, maybe it's the pub. I don't really know. Maybe you can have a conversation about duelling barnacles.
Again, thank you. I'll leave it to you to sign off.
Colleagues, I want to remind you that the deadline for witness submissions for the rising domestic operational deployment meeting is tomorrow, if you want to put in more witnesses. On Thursday, it's the PBO. Our esteemed clerk either has sent you a calendar or is about to send you a calendar, which should occupy the rest of 2023.
With that, the meeting is adjourned.