Poor management of equipment reported

March 7, 2017 by Stephen J. Thorne
The LAV-III was Canada’s workhorse in Afghanistan. The report indicates 13 were destroyed and another 159 damaged. (DND Photo)

Poor planning, understaffing and inefficiency in the acquisition and maintenance of key military equipment are threatening the Canadian Armed Forces’ ability to effectively do its job, says a report by the auditor general.

“National Defence had made some initial planning assumptions that overestimated equipment use, underestimated support costs, and under-resourced personnel requirements,” Auditor General Michael Ferguson wrote in a fall report.

As a result, equipment was unavailable and underused, Ferguson said. Better management would help ensure the military can meet future operational and training needs.

In part, the auditor general blamed 2013-14 budget constraints and high fixed costs for forcing the military to reduce equipment use without corresponding contractual obligations.

Ferguson’s office examined six of the military’s 30-plus major equipment types: the 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.

They represented annual contract support costs of about $700 million—an expenditure the auditor general said was not well-managed and more than what was needed.

Furthermore, he said DND did not consider all life-cycle costs when acquiring the equipment his office examined, thus approval estimates were incomplete.

Support costs submitted for approval were based on 20-year estimates instead of the equipment’s life expectancy, which can be up to 30 years. Estimates did not always include personnel, operating or infrastructure costs. And there were no cost estimates for mid-life refits or for replacing lost or damaged equipment.

Support costs can be more than twice acquisition costs over the life of equipment, yet DND did not have a proper handle on expenditures. Ferguson said poor data prevented DND from effectively monitoring
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.”

In three of the four aircraft types he examined, the auditor general found the hours flown were considerably less than the assumptions on which the contracts were based. Thus, Defence paid for higher levels of service than it used.

Under the Chinook helicopter support contract, for example, DND pays for a parts and maintenance system designed to support 7,200 hours of flying annually, with a fixed minimum payment of about $75 million a year. In 2015-16, the helicopters were in the air for 2,492 hours.

The CC-130J Hercules was expected to fly 10,000-15,500 hours and the contractor is required to provide support for 11,900 at about $70 million regardless of the hours flown, plus additions for each flying hour. The aircraft had averaged 5,300 hours a year for five years.

Public Services and Procurement Canada renegotiated the Hercules pricing and other terms in 2015, aiming to improve its value for money.

The auditor general found DND estimates for operating and maintaining the Sea King helicopter replacements, the Cyclones, were incomplete and unclear. The 2004 acquisition cost of 28 Cyclones was pegged at $1.8 billion, but this didn’t include full costs for their 25-year lifetimes. Nor did estimates include personnel or infrastructure costs, or operating costs beyond 12 years. In 2004, DND signed a 20-year support contract for equipment maintenance at a cost of $2.3 billion.

Ferguson said: “If National Defence had included all personnel, operating, and maintenance costs over the life of the Cyclone helicopter, we estimate that the total support costs would have been more than three times the acquisition cost.”


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