Opening Statement to the Committee On Public Accounts
Chapter 4 – National Defence - Buying Major Capital Equipment (April 1998 Report)
L. Denis Desautels, FCA
Auditor General Of Canada
Thank you, Mr. Chairman, for providing us with the opportunity to meet with the Committee to discuss Chapter 4 of my April Report, which focusses on the purchase of major capital equipment by the Department of National Defence. With me today are David Rattray and Peter Kasurak, respectively the Assistant Auditor General and Principal responsible for National Defence matters.
The Department plans to spend almost $6.5 billion over the next five years to purchase equipment that Canada’s armed forces need to carry out their assigned tasks.
Our audit examined six major capital projects with a total value of $3.3 billion. They were the Griffon Helicopter, the Maritime Coastal Defence Vessel, the Coyote armoured reconnaissance vehicle, the Eryx anti-armour weapon, the Electronic Support Training System, and the Leopard tank thermal sight project.
All six projects we examined are likely to meet their contract cost and performance objectives. Nevertheless, we are concerned about several of the management practices we observed.
We found that defence policy allows wide latitude in the level of equipment capability required. We noted in the projects we examined that affordability constraints resulted in the purchase of only low-end capability, limited the numbers purchased, or both.
Specific examples of projects that encountered these types of problems are the Griffon Helicopter, the Maritime Coastal Defence Vessel, and the Leopard thermal sight project. For each of these projects, the Department selected equipment that does not meet the original military requirement.
The Griffon helicopter cannot meet the army’s original lift and communications requirements; the Maritime Coastal Defence Vessel project is acquiring two sets of mechanical minesweeping gear for 12 ships and effective only against some types of mines, and has not acquired some of the equipment necessary to patrol effectively in darkness and poor visibility. The Leopard C1 tank is being fitted only with an improved sight, although the army had considered a complete upgrade, including the gun and armour, to be the “minimum viable” option.
We found several ways in which capital acquisition management practices could be improved:
Many of the problems associated with the purchase of major capital equipment that we have found both in the present audit and past audits continue to affect today’s capital acquisition projects. The Department confirmed the persistence of these problems in a recent re-engineering study that examined capital project management from end to end, and is addressing them in the many ongoing change initiatives. However, the introduction of new project management processes will require time to introduce new skills, training programs, and a continuous program of cultural change to realize full implementation.
I am encouraged by the Department’s efforts to resolve long-standing problems in the purchase of major capital equipment. In 1994 the Department began a major management renewal effort to cope with budget reductions and improve the effectiveness and efficiency of operations. As part of this effort, the Department has indicated that it plans to develop an action plan for a new acquisition process by 1999. The Department sent us a copy of the plan late last week. It has also developed a draft “Acquisition Reform Guide” that captures new acquisition concepts and is being developed into a detailed guide to implementing acquisition best practices.
In general, we found that the reform of the capital acquisition process is still in its early stages and progress in implementing change has been slow. This is understandable, given the complexity of the issues involved and the long-term nature of the problem. Also, because a major portion of the acquisition function remains outside the Department, particularly the contracting function, the Treasury Board Secretariat and Public Works and Government Services Canada also need to become involved in order to make required changes.
We recommend in the chapter that the Department of National Defence, in consultation with the other key departments and agencies involved in the capital acquisition process -- particularly Public Works and Government Services Canada, Industry Canada and Treasury Board Secretariat -- develop an implementation plan for reforming the capital equipment acquisition process.
This Committee may wish to request that the Department develop an implementation plan that clearly identifies the nature of the changes that are required, the targets for performance improvements and the time frame for achieving the improvements.
As I already mentioned, I am concerned about the low use of testing and evaluation, particularly when the Department purchases so-called commercial off-the-shelf or military-off-the shelf equipment.
In order to make sure that equipment can fulfil the operational tasks and missions of the Canadian Forces, it is necessary to ensure that adequate tests and evaluations of equipment are carried out prior to purchase and during acquisition to confirm that the right type of equipment is being purchased. This is particularly important when the Department intends to use the equipment in ways that have not been tried by commercial users or other military organizations. The Department should review the extent of pre-contract testing it performs and the degree of reliance it places on civilian certification of equipment.
Finally, the Department needs to strengthen its requirements and options assessment process, possibly by making it more prominent in its Acquisition Reform Guide. The Department should also prepare studies and analyses on a more timely basis so that they can be used to support acquisition decisions.
Mr. Chairman, this concludes my statement. We would be pleased to answer any questions.