Report 7—Operating and Maintenance Support for Military Equipment—National Defence
Audit at a Glance Report 7—Operating and Maintenance Support for Military Equipment—National Defence
What we examined (see Focus of the audit)
National Defence, composed of the Canadian Armed Forces and the Department of National Defence, determines the capabilities that it needs based on the six core missions contained in the Canada First Defence Strategy. To a large extent, delivering these capabilities depends on military equipment (ships, submarines, airplanes, helicopters, and land vehicles) being available and kept in good working condition and having the necessary trained personnel. To achieve this, military equipment requires support. In this audit, “support” refers to operating and maintenance activities that include engineering, training, inspection, maintenance and repair of equipment, and provision of spare parts.
This audit focused on whether National Defence managed equipment support in a cost-effective manner, so that military equipment was available and reliable to meet the Canadian Armed Forces’ operations and training requirements. We selected six types of equipment to examine: CC-177 Globemaster III strategic airlift aircraft, CH-148 Cyclone maritime helicopters, CH-147F Chinook medium-to-heavy lift helicopters, CC-130J Hercules aircraft, Victoria-class submarines, and tactical armoured patrol vehicles. In this audit, “cost-effective” is defined as the extent to which National Defence used the most appropriate and efficient means to achieve expected results with due regard to costs relative to alternative design and delivery approaches.
We did not audit the records of private sector firms. Accordingly, our conclusions do not pertain to private sector practices. We also did not audit the contract award process.
Why we did this audit
This audit is important because Canadians rely on National Defence to have equipment that is available and reliable to meet operational and training needs. Support costs need to be managed properly because, over the life of the equipment, they can be more than twice the acquisition costs. The life of equipment would be shortened if the equipment is not adequately maintained, thereby requiring additional investments.
What we concluded
We concluded that for the six types of equipment examined and at a departmental level, National Defence did not adequately manage the resources used to support military equipment in a cost-effective manner, to meet operational and training requirements. However, National Defence has taken some steps to make improvements, such as renegotiating an equipment support contract to improve its value for money.
Some initial planning assumptions, for the types of equipment we examined, overestimated equipment use, underestimated support costs, and under-resourced personnel requirements, which led to higher costs and reduced equipment availability. The equipment support contracts had fixed costs (representing large sums of money) resulting in National Defence paying for a higher level of service than it used, thereby reducing funding available for other equipment.
There is inherent complexity and unpredictability in forecasting equipment support. Today’s investment decisions for major equipment will have significant financial impacts for decades to come. National Defence must plan above minimum needs so that it has sufficient equipment available to respond to changing circumstances. Decisions to purchase equipment such as surface combatants and next-generation fighter aircraft will need to carefully consider the equipment’s full life-cycle costs to ensure that the equipment are put to their optimal use in a cost-effective manner.
What we found
Support for selected military equipment
Overall, for the selected equipment we examined, we found that National Defence did not adequately manage support in a cost-effective manner and paid for a higher level of service than it used. National Defence had made some initial planning assumptions that overestimated equipment use, underestimated support costs, and under-resourced personnel requirements. These assumptions led to higher costs and reduced equipment availability for training and operations. However, National Defence has taken some steps to make improvements, such as renegotiating an equipment support contract to improve its value for money.
National Defence monitored actual expenditures for maintaining equipment. However, we found that it did not monitor total support costs, including personnel, operating, and maintenance costs, against its estimate of the full costs to support equipment over its life. In addition, in some cases, due to poor quality of its data, management did not have the information that would allow it to properly monitor contractor performance.
This is important because poor planning decisions can result in paying for unused services and not having the necessary equipment available when it is needed. Managing equipment in a cost-effective manner will better allow National Defence to have available and reliable equipment to meet its future operational and training needs.
Recommendation. National Defence should ensure that future equipment support contracts are based on achievable planning assumptions and allow for adjustments in the contracts based on changing circumstances, where feasible.
Recommendation. National Defence should prepare and regularly update life-cycle cost estimates at key decision points for each type of equipment and monitor actual costs against revised estimates. It should also update its Investment Plan to reflect more complete life-cycle costs.
Recommendation. National Defence should clarify, in consultation with the Treasury Board of Canada Secretariat and the Department of Finance Canada, the use of incremental funds provided to National Defence, and ensure that these funds are appropriately monitored and used.
Recommendation. National Defence should better define and integrate resource requirements in the initial decision-making process for equipment approval and support. National Defence needs to monitor and manage equipment support risks in a comprehensive and integrated manner to ensure sufficient personnel and funds are aligned with operations and training requirements.
Recommendation. National Defence should improve the data quality in its information system in order to better manage equipment support.
Integrated resource planning at the departmental level
Overall, we found that National Defence, at a departmental level, did not adequately manage the resources used to support military equipment in a cost-effective manner to meet operational and training requirements. We found that National Defence created new oversight bodies and was reviewing its governance and processes to improve resource management. However, we also found that these activities were focused on acquiring the equipment and that the oversight of equipment support activities, such as comparing results achieved with resources used, was limited.
We also found that while National Defence had established performance measures in support contracts, it did not develop similar measures of its own performance. Furthermore, the information National Defence presented in its annual Departmental Performance Report on equipment availability was not meaningful.
This is important because accountability to Parliament ensures appropriate control of public resources. Effective governance is needed for National Defence to make fully informed decisions to prioritize spending and ensure it can afford to sustain the equipment for its life cycle to meet operational and training requirements.
Recommendation. National Defence should take action to streamline governance processes and better integrate resource planning for equipment support.
Recommendation. National Defence should measure its own performance on how well it manages equipment support.
Recommendation. National Defence should implement a process to measure and report on equipment availability and apply it in a consistent manner for internal and public reporting purposes.
Entity Responses to Recommendations
National Defence agrees with our recommendations, and has responded (see List of Recommendations).
|Report of the||Auditor General of Canada|
|Type of product||Performance audit|
|Completion date||30 September 2016|
|Tabling date||29 November 2016|
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