Opening Statement to the Standing Committee on National Defence

Maintaining and Repairing Military Equipment—National Defence

(Chapter 5—Fall 2011 Report of the Auditor General)

7 February 2012

Jerome Berthelette
Assistant Auditor General

Mr. Chair, thank you for this opportunity to discuss our findings from a recent audit that looked at how National Defence manages the maintenance and repair of its military equipment. Joining me at the table are Pierre Fréchette and Mathieu Tremblay, two audit project leaders who worked with me on this audit.

Sustaining operational capabilities requires that military equipment be kept in good working condition. Effectively planning, supporting, and carrying out maintenance and repair activities for military equipment is therefore crucial to the Canadian Forces’ ability to meet their core missions.

In 2009–10, National Defence spent more than $2 billion to maintain and repair its military equipment. This included expenses for routine inspections, preventive maintenance, corrective repairs, spare parts supply, periodic repair and overhaul, engineering changes, and other related tasks.

Overall, our audit found that National Defence has planned and managed the maintenance and repair of military equipment to meet operational priorities in the short term. The annual process of allocating available funds provides an effective forum to discuss priorities, with wide participation of those responsible for maintaining and repairing military equipment and those who need it for operations and training.

However, there is a significant gap between the demand for maintenance and repair services and the funds that National Defence allocates each year for this purpose. In addition, National Defence has indicated that its long-term investment plan for new equipment has likely allocated insufficient funds for equipment life-cycle costs.

The Department does not know the specific long-term impacts of this funding gap on its operations and training activities. In the past, some readiness targets have been downgraded in order to meet the capacity that was affordable with available funds.

Our audit also looked at contracting practices for maintenance and repair activities, an area in which National Defence has made significant changes over the last decade. In particular, we looked at two new contracting approaches developed over that period: one for existing equipment called Optimized Weapon Systems Management (OWSM) and one for new equipment known as the In-Service Support Contracting Framework (ISSCF). These new practices have the potential to help National Defence better manage maintenance and repair activities and realize cost savings.

We found that the implementation of the new contracting approach for existing military equipment (OWSM) has been slower and more limited than planned. As a consequence, National Defence has lost opportunities to derive the potential benefits of improved performance, improved accountability, and reduced costs.

National Defence’s In-Service Support Contracting Framework for new equipment awards both the acquisition and the long-term maintenance contracts to the same supplier. Our audit found that National Defence is not adequately monitoring and mitigating the risks created by the introduction of this new contracting framework. For example, while the Department knows this approach could reduce maintenance and repair expertise within the Canadian Forces and create dependence on a single supplier for each fleet, it has made little progress towards implementing mitigation strategies to address these risks.

In addition, we do not believe that the implementation of this approach has received the attention and resources it needs. Given that most of the acquisitions of new major military equipment planned under the Canada First Defence Strategy for the next two decades will be subject to the requirements of this framework, reducing the risks associated with the In-Service Support Contracting Framework will be important. Better coordination with other federal departments and the Canadian defence industry will also be required in order to achieve this.

Our report concluded that National Defence’s ability to meet its training and operational requirements over the long term is at risk because of a persistent maintenance and repair funding gap, ongoing weaknesses in the implementation and oversight of the new contracting approaches, and the lack of sufficient cost and performance information for decision making.

National Defence agreed with our audit recommendations and made several commitments in its response. We understand that National Defence is currently completing a formal action plan to support its commitments.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the Committee may have. Thank you.