This Web page has been archived on the Web.
1999 September and November Report of the Auditor General of Canada
September and November 1999 Report—Chapter 27
Appendix A—Descriptions of the Audited Alternative Service Delivery Projects
NATO Flying Training in Canada (NFTC) - Moose Jaw *
Based on initiatives from Bombardier Inc., Defence Systems Division, Canada and an industry team led by Bombardier have established a military fighter pilot training program for the Canadian Forces as well as the military air forces of other nations who choose to participate. The industry team, which includes Frontec Corporation of Edmonton, CAE Aviation Limited of Edmonton and CAE Electronics of Montreal, will provide fully serviced aircraft, training material, flight simulators, airfield and site support services and other services.The contract was signed in May 1998 and is valued at $2.8 billion. It covers over 20 years of flying training and will end in December 2021. Although this project was initiated before National Defence announced its formal ASD program, it does incorporate many ASD principles.
Canadian Aviation Training Centre (formerly CFB Portage-la-Prairie)*
As a result of the 1989 federal Budget, the Minister of National Defence directed that Canadian Forces Base Portage La Prairie be closed by July 1992. This resulted in the decision to contract out four elements of the Canadian Forces pilot training system - Primary Flying Training, Basic Helicopter Training, Multi-Engine Training and Continuation Flying Training. The site was sold to a non-profit development corporation for $1, resulting in the creation of Southport Aerospace Centre Inc. (SACI). SACI's fundamental concern is the creation of employment.The initial five-year contract was awarded in 1991 to an industry team led by Bombardier Inc., Canadair Defence Systems Division. Under the contract, Bombardier Inc. provides primary flying training using industry-provided aircraft; the multi-engine training aircraft are contractor-owned; the helicopters are owned by National Defence and loaned to the contractor. Bombardier Inc. also provides facilities such as classrooms and offices. Finally, under an agreement with SACI, Bombardier Inc. operates the airfield, provides air traffic control and attends to student housing and feeding.
The initial contract, which ended 31 August 1997, included an irrevocable option to extend the contract for two additional years. The option has been exercised and the contract now ends 31 August 1999. A decision has been made to further extend this contract for a three-year term ending in August 2002. The full value of the contract extended until 31 August 1999 is $236 million. The three-year extension is estimated at $100 million.
Munitions Experimental Test Centre (METC)
An ASD study conducted in 1996-97 examined the activities of the Proof and Experimental Test Establishment (PETE) at Nicolet and the Defence Research Establishment Valcartier (DREV) South at Val Bélair. The study identified sufficient similarities in technological capabilities and strategic direction to recommend that a combined entity would be a highly feasible option that should yield savings through the rationalization of staff, facilities and equipment.The study also recommended that National Defence cease to provide contract compliance (quality assurance) testing of ammunition, which would be assumed by the manufacturer, SNC Industrial Technologies (SNC IT). This work will be performed by the manufacturer on the Nicolet site. As a result, starting on 1 April 1998, the current contract with SNC IT was increased by about $3.9 million per year to include compliance testing.
The research activities have been combined at the Val Bélair site. The total annual budgeted amount for the revised combined entity referred to as the METC is estimated at $9.5 million, which includes the $3.9 million contract amount.
CF-18 Automated Test Equipment Avionics Support
Canadian Forces avionics technicians use software-driven Automatic Test Equipment (ATE) to test and repair both the black boxes and their circuit cards for CF-18s. This work as well as maintenance of the related software and equipment was identified for ASD. As a result of this ASD initiative, the Department started discussions with Harris Corporation in 1996 on the possibility of industry working with the Department to find ways to reduce ATE support costs for the CF-18 aircraft.A group of companies led by Harris Corporation has been actively pursuing this potential business venture. During the period August to November 1996, this group briefed various members of the Department on its concept of CF-18 ATE operations and maintenance. The formal proposal submitted by the industry team recommended that a joint Consolidated ATE Facility (CATEF) be established in Calgary and operated by a contractor with an option of assigning military personnel to maintain currency in hands-on testing. This proposal also recognized the problem of obsolescence with the older static ATEs and recommended the purchase of portable ATE equipment (PAT). After evaluating the internal and the commercial options, National Defence decided to contract out with Harris Corporation to operate the CATEF and to purchase up to six PATS to deal with obsolescence.
A 10-year contract was signed 16 June 1999 and includes $65 million for the purchase of equipment and $85 million for the purchase of services and spare parts.
Ottawa Publications Depot (in-house bid)
The Ottawa Publications Depot was identified as a candidate for ASD in February 1996. It provides warehousing, printing and distribution services for DND's publications and audio-visual materials. Its customers include National Defence, other government departments and individuals. The in-house team competed against a private sector firm and won with its proposal to reduce costs by 34 percent. The depot will operate under a three-year Service Level Agreement (SLA) with a value of $9.2 million.
Project Genesis*
Project Genesis was chartered on 7 February 1995. The project commissioned a small core team to begin re-engineering in the Air Force organizations. The project focusses on the Fighter Force. Its goal is to reduce enterprise costs of the Fighter Force by at least 25 percent of 1993-94 costs.The total 1993-94 costs (in 1994-95 dollars) for the Fighter Force were $1 billion for personnel, operations and maintenance, and $264 million for capital. The Department estimates that it has achieved a cost reduction of $310.6 million or 31.6 percent.
This is not an ASD project, although some of the smaller projects involved under Project Genesis are.
Meaford Area Training Centre*
The Meaford Area Training Centre is tasked to provide and maintain ranges, training areas, facilities and equipment for approximately 10,000 Reserve soldiers in the Ontario area. It has a total capacity of 384,000 student-days per year. The centre opened in July 1995.All support services were contracted out from the day it opened. National Defence considered this to be an initial ASD pilot project that could serve as a model for implementing the ASD program. A $40 million contract is in place for the period of October 1995 to November 2000.
Goose Bay Support Services
The Goose Bay base is primarily used for flight training by European Allied Forces. A 10-year agreement between National Defence and the participating ministries of defence was established in 1986 and renewed in 1996. It provided for approximately $80 million in annual payments for the use of Goose Bay for flight training. In 1995, this represented approximately 68 percent of the base's total expenditures of $118 million.The Goose Bay base was not directly supporting a Canadian Forces operational role, so its services were prime candidates for ASD. In 1995, the Vice Chief of the Defence Staff approved a recommendation that a request for proposal be issued to the private sector for Alternative Service Delivery at Goose Bay. In April 1997 a request for proposal was issued for the management and delivery of non-core services in support of the Allied low-level flying training program, civil aviation and other third-party users.
In April 1998, a five-year contract was awarded to Serco to provide base support services. The $135 million contract covers the period from 1 April 1998 to 31 March 2003. Under this contract, the Department expects that the costs at CFB Goose Bay will be reduced from $44 million to about $22 million annually.
Trenton Food Services
Canadian Forces Base Trenton is Canada's largest air transport base. The base consists of a full-sized airport that handles all types of military and commercial aircraft. It also functions as a significant training facility, providing a diverse range of training and development programs for the military.The food services requirements at the base include entitlement meals, flight meals, and food service supply procurement. The service had an annual cost of $4.2 million. In 1994, an ASD project was initiated to determine if food services could be obtained at a lower cost by having a competition between the in-house team and private sector firms. The in-house team won the competition and has been the food provider at CFB Trenton since 1 April 1998.
Military Pay *
Military Pay Service (MPS) is controlled by three major stakeholders, none of which can be considered its single owner. MPS processes payments for the Regular and the Reserve forces, comprising approximately 60,000 and 30,000 members respectively. The pay system also ensures payment of deployed personnel, manages financial arrangements for the families of deployed staff, processes personnel information and accepts input from military staff at various bases. The purpose of the Military Pay project was to provide the same levels of service at a lower cost.In 1994, the cost of delivering Regular Force military pay services was $55 million. An internal study determined that $15 million in costs could be avoided if the pay system became a "most efficient organization" (MEO). This saving has already been achieved through downsizing and re-engineering efforts that have reduced the cost of this activity to $31 million, as reported in 1997. It is expected that this cost can be further reduced by the implementation of additional departmental initiatives in this area.
The ASD process has been deferred for the time being and the Department retains the current MPS arrangement. Several factors are responsible for the deferral of ASD. First, there is disagreement among the stakeholders about the funding for a contract. Second, the MPS study indicates that internal re-engineering should be completed before contracting out is considered. Third, it is questioned whether contracting out would actually save money.
Auxiliary Fleet Operations - Esquimalt and Halifax Fleets
The auxiliary fleets in Halifax and Esquimalt, otherwise known as the Queen's Harbour Master (QHM), are autonomous line units. The QHMs are responsible for operational support to the naval fleet, associated bases, fleet maintenance facilities (FMFs), defence research establishments and other government departments. They are also responsible for the management and operation of the Canadian fleet of auxiliary vessels.Using the limited data available, the total program cost was estimated at $15.4 million for the Halifax fleet and $11.8 million for the Esquimalt fleet. The purpose of the Auxiliary Fleet Operations project was to determine which of the 91 activities in the fleet support program qualified as candidates for ASD. The program identified activities that could be contracted out. Efforts are continuing to implement some measures that will increase cost effectiveness.
National Defence Headquarters (NDHQ) Facilities Management
NDHQ Facilities Management (FM) is a service that costs approximately $1.4 million and includes such responsibilities as space management, space layout and design, parking administration and conference room management. The FM project was to determine if the service could be contracted out at less cost than it could be provided internally.A Facilities Management Agreement was signed in 1997 requiring Public Works and Government Services Canada (PWGSC) to deliver the FM service for two years, starting 4 September 1997. National Defence estimates savings of $403,000 in the first year and $281,000 in the second. In April 1998, the agreement was expanded and construction engineering services were transferred to PWGSC.
Aerospace Engineering Test Establishment (AETE)
AETE is located at CFB Cold Lake in Medley, Alberta. It provides flight test service to the Canadian Forces (CF) as well as flight and technical evaluations of aircraft and aerospace equipment. Moreover, AETE maintains expertise in flight test and aircraft maintenance for a widely varied fleet that includes some unique equipment. Further, a large engineering and technical staff is required to plan and conduct tests, collect and analyze data, and provide conclusions and recommendations following each aircraft and system evaluation.AETE was identified as a candidate for ASD in July 1995. The ASD process was initiated to market the excess capacity of the facilities to the private sector and foreign militaries, to capture technological advantages of private sector firms and obtain private sector funding. In March 1998 a decision was made to retain current arrangements.
Fleet Maintenance Facilities
The Fleet Maintenance Facilities at Halifax (Cape Scott) and Victoria (Cape Breton) provide engineering and maintenance services to Canada's Navy. The full cost of operating the production divisions of these facilities during 1996 were estimated at $75 million and $54 million respectively.The May 1996 ASD analysis report concluded that delivering ship repair and maintenance services by alternative means would not result in improved cost effectiveness at that time. The report recommended that the production divisions of these facilities continue to seek the most effective mixture of public and private provision of repair work in a manner that would support the needs of both National Defence and the shipbuilding industry. The initial target date set for achievement of a "most efficient organization" (MEO) is December 1999.
* These projects were initiated prior to the promulgation of the ASD policy and the release of the ASD methodology.