2008-09
Departmental Performance Report

National Defence

Supplementary Information (Tables)

Table of Contents

• Sources of Respendable and Non-respendable Revenue
• Details on Project Spending
• Status Report on Major Crown Projects
• Details on Transfer Payments Programs
• Sustainable Development Strategy
• Green Procurement
• Response to Parliamentary Committees and External Audits
• Internal Audits and Evaluations

Sources of Respendable and Non-Respendable Revenue

Details on Project Spending (Capital Equipment Program over $30 Million)

Projects listed in the table below have been identified as either: (1) projects in which the estimated expenditure exceeds the delegated approval authority granted to DND by the Treasury Board ($30 million with substantive cost estimates), or (2) projects in which the risk is particularly high, regardless of the estimated amounts.

Status Report on Major Crown Projects

• Airlift Capability Project - Strategic (ACP-S)
• Airlift Capability Project - Tactical (ACP-T)
• Arctic/Offshore Patrol Ship (A/OPS)
• Armoured Personnel Carriers (APC)
• Canadian Cryptographic Modernization Program (CCMP) Omnibus Project
• Canadian Forces Supply System Upgrade (CFSSU)
• Canadian Forces Utility Tactical Transport Helicopter (CFUTTH) Project
• Canadian Search and Rescue Helicopter (CSH) Project
• Halifax Class Modernization/Frigate Life Extension (HCM/HELEX)
• Intelligence Surveillance, Target Acquisition and Reconnaissance (ISTAR)
• Joint Support Ship (JSS)
• Light Utility Vehicle Wheeled (LUVW)
• Main Battle Tank (MBT)
• Maritime Helicopter Project (MHP)
• Material Acquisition and Support Information System (MASIS)
• Medium to Heavy Lift Helicopter (MHLH)
• Medium Support Vehicle System Project (MSVS)
• Military Automated Air Traffic System (MAATS) Project
• Protected Military Satellite Communications (PMSC)
• Submarine Capability Life Extension (SCLE)

AIRLIFT CAPABILITY PROJECT - STRATEGIC (ACP-S)

Description: The objective of the Airlift Capability Project - Strategic is to acquire four new aircraft that will provide the global reach and speed necessary to operate effectively over long distances to deliver personnel and cargo directly into a theatre of operations, including a threat environment.

Project Phase: Implementation. All four aircrafts have been accepted on schedule and Close-Out is expected for summer 2012.

Progress Report and Explanations of Variances: All four aircraft have been accepted on schedule and have completed close to 5,000 flying hours. The project office is currently working on the Implementation Phase in support of this acquisition. Due to complexities in transitioning to in-service support, Final Operational Capability (FOC) will be delayed to Spring 2012 when the Trenton infrastructure is completed and the Squadron can sustain all Lines of Tasking and all planned mission types as stated in the Statement of Operational Capability. The project will close-out after FOC.

Industrial Benefits: Industrial and Regional Benefits (IRBs) are equivalent to 100% of the acquisition contract, Boeing's share of the in-service support Foreign Military Sales contract value and the value of the engines. (A separate IRB agreement was negotiated with Pratt and Whitney USA for the value of the engines for the C-17). The three IRB agreements total $1.9B. Several IRB announcements have been made and all regions of Canada will benefit from these contracts.

AIRLIFT CAPABILITY PROJECT - TACTICAL (ACP-T)

Description: The objective of the Airlift Capability Project - Tactical is to ensure a continued tactical airlift capability. In combination with the Fixed Wing Search and Rescue project, this project will replace the Canadian Forces' ageing CC 130E/H Hercules fleet. This project will provide the Canadian Forces with an assured and effective tactical airlift capability that allows the requisite operational flexibility and responsiveness to support international and domestic operations.

Project Phase: Implementation. The ACP-T project entered the Implementation Phase with the December 2007 contract award to Lockheed Martin Corporation for 17 C-130J-30 aircraft. Aircraft deliveries will commence no later than June 2010, with the final aircraft delivered no later than December 2012.

Progress Report and Explanations of Variances: Under the agreement of the December 2007 contract award, Lockheed Martin Corporation is required to undertake an open and fair competitive solicitation for the provision of in-service support. The outcome of this Contractor-led solicitation would be one of many deliverables from the contract and will form the basis of a negotiation for amendments to the contract to include in-service support provisions. The in-service support effort will include contractor provided support to: logistics, engineering, maintenance, material, publications, maintenance training, test equipment and electronic information environment.

The ACP-T project is currently running on schedule and on budget.

Industrial and Regional Benefits: This procurement will provide industrial regional benefits equivalent to 100% of the contracted value for both the capital acquisition and in-service support. For the in-service support portion, 75% of the contract value will be direct work performed by Canadian companies. Lockheed Martin Corporation will be required to identify, as specific work packages, 60% of the total acquisition commitment. These Industrial and Regional Benefits requirements will be negotiated and accepted by Industry Canada prior to the in-service support contract amendment signing.

ARCTIC/OFFSHORE PATROL SHIP (A/OPS)

Description: The Arctic/Offshore Patrol Ship (A/OPS) project has been established in order to deliver to the Government of Canada a naval ice-capable offshore patrol ship to assert and enforce sovereignty in Canada's waters including the Arctic. When the project completes, the six to eight fully supported A/OPS delivered to the Canadian Forces will be capable of:

• Conducting armed, sea-borne surveillance of Canada's waters, including the Arctic;
• Providing to Government situational awareness of activities and events in these regions; and
• Cooperating with other elements of the Canadian Forces and other Federal Government departments to assert and enforce Canadian sovereignty, when and where necessary.

Project Phase: Definition/Implementation

Prime and Major Sub-Contractors

No prime contractor has been selected. Final selection of the prime contractor will occur at Effective Project Approval, planned for January 2011.

Progress Report and Explanations of Variances: The project continues to progress steadily since obtaining Preliminary Project Approval in May 2007. Treasury Board granted expenditure authority of $42.465M ($BY), full up including GST, for Definition Phase. Treasury Board also acknowledged the indicative full up cost of $3,231.7M ($BY) including GST, for acquisition. So far, no variances in cost estimates have been identified. A/OPS is expanding on the Definition Phase to produce a design that will be included as part of the RFP, ensuring that it meets the requirements, and can be used by potential bidders.

Industrial and Regional Benefits: Industrial and Regional Benefits (IRBs) for this project are equivalent to 100% of the contracted value for both the capital acquisition and in-service support.

ARMOURED PERSONNEL CARRIERS (APC)

Description: The Armoured Personnel Carrier (APC) is essential for all foreseeable Canadian Forces roles, including territorial defence, UN peacekeeping and peace enforcement operations, other international commitments, and Aid of the Civil Power. The existing APC fleet does not meet the minimum operational requirements when compared to the modern, technically sophisticated weapons and vehicles Canadian soldiers encounter during operations. They suffer shortcomings in protection, self-defence capability, mobility, carrying capacity and growth potential. The APC Project is fielding a fleet of modern, wheeled, armoured personnel carriers. 651 Light Armoured Vehicles (LAV) III are to be procured in six configurations: Infantry Section Carrier, Command Post, Engineer, Forward Observation Officer, and TOW (Tube Launched, Optically Tracked, Wire Guided) Under Armour, and LAV III Less Kits.

Project Phase: Implementation. All vehicles were delivered by October 2007 and construction activities for indoor accommodation are well under way. The project is scheduled for completion in March 2011.

Progress Report and Explanation of Variances: In August 1995, the Government approved in principle the procurement of up to 651 APCs. In January 1997, the Government announced the award of a contract to General Dynamics Land Systems - Canada (GDLS-C) to build 240 new eight-wheel-drive APCs. The contract contained three options for an additional 120, 120 and 171 APCs. All three options have been exercised. All vehicles were delivered by October 2007.

The vehicles have been involved in significant operational demands after being fielded and have performed well. They have since undergone a number of modifications to adjust to the modern threat, and will require additional work to optimize performance against these threats. Planning is currently underway to address this issue.

In March 2004, Treasury Board authorized $129M for indoor accommodation for LAV III to facilitate regular maintenance and training programs, and prevent any deterioration that would result from outdoor storage. Construction will take place in six locations: Edmonton, Wainwright, Petawawa, Montréal, Valcartier, and Gagetown. Construction activities are well under way and are scheduled for completion in early 2011. The project can then close in March 2011.

Industrial Benefits: This project includes the following overall industrial benefits, and regional and small business achievements:

CANADIAN CRYPTOGRAPHIC MODERNIZATION PROGRAM (CCMP)

Description: The Canadian Cryptographic Modernization Program (CCMP) is a 12-year program (fiscal year 2004-2005 to 2015-2016) that will modernize the Government of Canada's aging cryptographic equipment and infrastructure in order to safeguard classified information and maintain Canada's ability to establish secure communications both nationally and internationally. The CCMP Omnibus Project includes the following sub-projects:

• Secure Voice / Telephone Re-key Infrastructure
• Secure Voice / Telephone Family
• Classified Security Management Infrastructure (CSMI)
• Combat Identification Family
• Link Encryption Family
• Network Encryption Family
• Secure Radio Family
• Secure Mobile Environment

Project Phase: Implementation for some sub-projects and Definition for others.

Progress Report and Explanations of Variances: Fiscal year 2008-09 was the fifth year of this 12-year program. The CCMP is executing within budget.

In March 2005, Treasury Board granted Preliminary Project Approval to the CCMP Omnibus Project at an estimated full-up cost of $839M with expenditure authority for the project definition phases and management of the program at a substantive full-up cost estimate of $80M.

In November 2006, Treasury Board granted Preliminary Project Approval to the Classified Security Management Infrastructure project at an estimated full-up cost of $182M with expenditure authority for the implementation of Phase 1A at a substantive full-up cost estimate of $31M.

In February 2008, the Secretary to the Treasury Board granted expenditure authority for a subsequent phase of the CSMI project; i.e., implementation of Phase 1B at a substantive full-up cost estimate of $12M, and definition of Phase 2 at a substantive full-up cost estimate of $3M.

The following completion dates have changed from those recorded in the CCMP Omnibus Project PPA approved in March 2005.

• Secure Voice Re-key Infrastructure close-out was moved to September 2009 in order to incorporate stronger security for re-keying new secure phones. This sub-project achieved Initial Operational Capability on schedule in December 2006, and Full Operational Capability in June 2009. This will be the first sub-project under the CCMP umbrella to reach completion.
• Secure Voice/Telephone Replacement close-out was moved to December 2011 in order to coordinate software upgrades needed by the new secure phones for interoperability and improved information protection.
• Classified Security Management Infrastructure Phase 1 completion was moved from 2008 to 2011. Phase 1 was divided into Phase 1A and 1B to reduce the complexity of managing the project.
• Combat Identification Replacement completion was moved from 2010 to 2016 due to changes in the US program schedule.
• Classified Security Management Infrastructure Phase 2 close-out was moved from 2011 to 2014 due to delays in the US Key Management Infrastructure program.
• Link Encryption Replacement completion will occur ahead of schedule in 2013. The first two milestones have been met and the sub-project is on track to meet the December 2009 milestone. Thirty-five percent of the GC link encryption devices, which encrypt information during transmission between two points, have been replaced.
• Network Encryption Replacement completion was moved from 2011 to 2014 to align with the implementation schedule in DND.
• Secure Mobile Environment is a new crypto family that was added to the CCMP in June 2007. Handheld wireless devices designed to handle classified information are currently being tested and evaluated.

Industrial Benefits: N/A

CANADIAN FORCES SUPPLY SYSTEM UPGRADE (CFSSU)

Description: The Canadian Forces Supply System Upgrade (CFSSU) project will meet the future supply requirements of the Canadian Forces during all operational situations while effectively and economically managing the Department of National Defence inventory. The system will have an inherent flexibility to manage changes in force structure, size and all types of missions. The CFSSU project will employ information technology to modernize Canadian Forces military supply operations. Not only will this technology dramatically improve productivity, it will also enhance the capability for performance measurement, greatly increase asset visibility, and provide a powerful management tool for provisioning. Additionally, the new supply system will have a deployed capability. The deployed solution is complementing the existing September 2001 corporate implementation to Bases and Wings, as well as the November 2002 implementation, which include all remaining CFSS users, at home and overseas.

Project Phase: Close-Out. CFSS Deployed has been implemented on 17 ships as well as at two sites for CANSOFCOM.

Progress Report and Explanations of Variances: Treasury Board initially approved the CFSSU project with an estimated cost of $289.3M. The Treasury Board approved in April 2000, the de-scoping of certain functionality and an increase to project contingency funding of $9.8M. In addition, $5M was approved in order to permit DND the option of restoring the Distribution Resource Planning (DRP) component. The Implementation Phase of DRP was de-scoped and the project budget remained at $304.1M.

The CFSSU Project has been transferred from implementation to Close-out in September 2004. Close-out funding is $3.6M. In March 2006, DND Program Management Board approved the usage of Close-out funds for the project; these funds are to be used until fully expended or the work is completed. This pproject is closed and all Close-out funds and related activities will have ended as of the end of fiscal year 2009-10.

CANADIAN FORCES UTILITY
TACTICAL TRANSPORT HELICOPTER (CFUTTH) PROJECT

Description: The purpose of the Canadian Forces Utility Tactical Transport Helicopter (CFUTTH) Project is to acquire helicopters in support of national and international tactical aviation roles. The project supports the Land Force, Air Force, Canadian Expeditionary Force Command (CEFCOM) operations and Civil Emergency Preparedness, as well as a wide range of defence objectives. It has replaced three aging helicopter fleets - the CH118 Iroquois, the CH135 Twin Huey and the CH136 Kiowa. The Bell 412CF/CH146 was procured as a single role multi-mission helicopter capable of supporting a majority of the tasks previously undertaken by fleets it replaced. The operational requirements for the CFUTTH defined the principle task requirements to include the tactical lift of troops, logistical lift, reconnaissance and surveillance, direction and control of fire, aero-medical support and casualty evacuation, command and liaison, and communications assistance. These mission capabilities are employed in support of DND operational commitments, United Nations peacekeeping missions, and support to other Government Departments and Agencies, including aid of the civil power.

Project Phase: Implementation. The project has delivered 100 Bell 412CF/CH146 Griffons, a flight simulator, composite maintenance trainer, facilities, mission kits (including defence electronic warfare suites), as well as other equipment, documentation and services. It is scheduled for completion in November 2009.

Progress Report and Explanation of Variances: This project received Government approval in April 1992 and Treasury Board approval in September 1992, with an original budget of $1.293B. Following directed reductions to the project budget and by assuming certain performance risks, the project will be completed in November 2009 for approximately $200M less than the initial Treasury Board budget approval. Remaining work consists of modifying the CH146 to accommodate the Radar Laser Warning Receiver (RLWR) functionality as well as the implementation of the Single-Channel Ground and Airborne Radio System (SINCGARS) capability.

Industrial Benefits: To date, Bell Helicopter has claimed $289.5M direct and $252.1M indirect industrial regional benefits, totalling $541.6M, representing 107% of the overall commitment. Bell Helicopter Textron Canada has committed to achieving $506.7M in Canadian value-added industrial regional benefits as follows:

CANADIAN SEARCH AND RESCUE HELICOPTER (CSH) PROJECT

Description: Maintaining a national search and rescue capability is a direct departmental objective. The purpose of the Canadian Search and Rescue Helicopter (CSH) project was to replace the CH-113 Labradors with a fleet of 15 new helicopters. The new helicopters have addressed the operational deficiencies of the CH-113 Labrador fleet and eliminated the supportability difficulties of the older airframes. Given expected aircraft availability rates and a sufficient fleet size, continuous operations are anticipated well into the 21st century.

Project Phase: Completed. As of July 2003, all 15 Cormorant helicopters have been delivered. Spare parts and infrastructure are in place to support operations. Initial training is complete. Effective Project Closure was achieved in September 2004, but some work is still ongoing and full completion is not expected before 2013.

Progress Report and Explanation of Variances: The project has procured the required aircraft spares, maintenance and support equipment, a Cockpit Procedures Trainer and facilities for the four Canadian Forces search and rescue bases. The project has also established and funded the first two years of an in-service support contractor for follow-on support.

The Cormorant has been operational at the squadrons in Comox, BC, Gander, NF, Greenwood, NS and Trenton, ON. However, CH149 operations at 424 Squadron in Trenton have been suspended temporarily due to the lack of aircraft availability and difficulty to maintain adequate aircrew training.

It should be noted that although Effective Project Closure was achieved in September 2004, some work is still ongoing and full completion is not expected before 2013. The milestones still outstanding are tied to a three year Technical Publication Revision Service which is not expected to begin until fiscal year 2012-2013, and a number of milestones related to outstanding aircraft deficiencies which are expected to take at least two years to address.

Industrial and Regional Benefits: The contractor (AWIL) committed to providing direct and indirect industrial benefits valued at $629.8M, within eight years from the date of contract award. It is estimated that these benefits created or sustained roughly 5,000 person-years of employment in Canada, and that all regions of Canada benefited from this project. The contractor has completed its obligations to Canada in regard to Industrial and Regional Benefits under the CSH contract. Small businesses in Canada will also benefit from the project by the placing of $67.0M in orders.

HALIFAX CLASS MODERNIZATION/FRIGATE LIFE EXTENSION (HCM/FELEX)

Description: The HCM/FELEX project is the principal component of the overall HALIFAX Class modernization (HCM) initiative. The project will plan and manage HALIFAX Class mid-life refits, acquire the major elements of the new combat system, and deliver stability enhancements, degaussing improvements and a Commander Task Group capability in four ships. As the Design Integration Authority for the HCM, PM HCM/FELEX is responsible for the ship level design integration of all elements of the HCM including any unique/specific engineering changes required to address integration requirements. To ensure that the overall modernization initiative is achieved in a timely, efficient and coordinated manner, the HCM/FELEX project will conduct overall design integration, coordinate schedules, manage inter-project risk, and manage equipment installation during the mid-life refits. Major equipment acquisitions through HCM/FELEX will include a modernized Command and Control System, Multi-Link, Identification Friend or Foe Mode S/5, upgrades to the radars, new Electronic Support Measures System, upgrades to the Internal Communications system, and an upgraded Harpoon Weapon System. These acquisitions will both sustain current capability and contribute to the new littoral operations role of the HALIFAX Class.

Project Phase: Implementation. Implementation of the HCM/FELEX project will occur through three principal contracts: two Multi-Ship Contracts (MSC) for docking work periods/refits and one Combat System Integration (CSI) contract to develop, procure and install the majority of the combat system elements of the project. Project completion is expected by January 2019.

Progress Report and Explanation of Variances: In September 2008, Treasury Board granted Effective Project Approval and Expenditure Authority for the project. The total full-up project value, including GST, is $2,998M (BY).

Three qualified contractors were selected to receive Request For Proposals through a Solicitation of Interest Qualification process. During the RFP process, two of the potential bidders withdrew from the competition. The sole bid, from Lockheed Martin Canada (LMC), was compliant with all mandatory requirements and a risk assessment of its proposal indicated no unacceptable risks. The CSI contract was awarded to LMC in November 2008.

The HCM/FELEX Project is presently in its implementation phase and is currently within budget.

A Request for Proposal for the Multi-Ship Contracts (docking work periods and refits) resulted in two successful bidders, Halifax Shipyard on the east coast and Washington Marine Group (Victoria Shipyard) on the west coast. Contracts were awarded to the two shipyards in March 2008.

Industrial and Regional Benefits: Industrial and Regional Benefits (IRBs) for this project are equivalent to 100% of the contracted value.

INTELLIGENCE SURVEILLANCE, TARGET ACQUISITION
AND RECONNAISSANCE (ISTAR)

Description: ISTAR is an omnibus project that received Treasury Board approval for definition phase activity in April 2003. The purpose of this project is to develop, deliver and evolve an integrated, interoperable, ISTAR capability that will improve the ability of commanders to visualize the operational area, manage sensors and information collection resources, and to plan and implement actions to successfully complete operational missions. The project will provide enhancements to existing capabilities and include the acquisition of new capabilities in the areas of communications, command and control and sensors. The project includes the acquisition of Unmanned Aerial Vehicles (UAV), Weapon Locating Sensors (WLS) and transformation or enhancement of existing sensor platforms to include Electronic Warfare (EW), Light Armoured Vehicle III, Coyote Reconnaissance Vehicle, Ground Based Air Defence, Geomatic support and Tactical Meteorology Systems.

Project Phase: Implementation. Delays have been experienced in formally advancing the sub-projects to the Implementation Phase due to the impact of numerous Urgent Operational Requirements for Afghanistan that are related to and implemented by the LF ISTAR Project Management Office. In support of Urgent Operational Requirements for OPERATION ATHENA in the 2003/2004 timeframe, the project delivered equipment in the areas of Command and Control, Tactical Unmanned Aerial Vehicles, Weapons Locating Sensors and Electronic Warfare capabilities. These early deliveries enhanced professional knowledge and contributed to project definition work. Early delivery of elements of the Unmanned Aerial Vehicles, Electronic Warfare, and Data Link Communications sub-projects continued during 2006 with the Urgent Operational Requirements for OPERATION ARCHER. As well, urgently required systems in particular the HALO Acoustic Weapons Locating System, the Lightweight Counter Mortar Radar system, and additional Electronic Warfare systems were fielded in 2007. Responding to the need for persistent surveillance identified by the CF Counter IED Task Force and confirmed in the recommendation of The Independent Panel on Canada's Future Role in Afghanistan, the LF ISTAR Project Management Office delivered additional Small Unmanned Aerial Vehicle capability through a contracted service in 2008. In early 2008 the Electronic Warfare sub-project and the Command and Control sub-project were approved for implementation.

Progress Report and Explanations of Variances: Prosecuting the Urgent Operational Requirements continues to challenge the omnibus project delivery; however, current estimates are that the project will be complete in 2013 as per the schedule contained in the LF ISTAR Omnibus revised Preliminary Project Approval submission approved by Treasury Board in December 2006. National Procurement funding requirements are being identified in the Effective Project Approval documentation for each of the ten sub-projects. Effective Project Approvals have been received for all but three of the LF ISTAR sub-projects.

Delivery of equipment actually started with UORs in Op ATHENA, and final deliveries are scheduled out to 2013. The currently approved sub-projects in support of Op ATHENA and Op ARCHER are:

• UAV UOR Op ATHENA
• BLOS Op ARCHER
• MEWT Op ARCHER
• Mini UAV UOR Op ARCHER
• AWLS Op ARCHER
• LCMR Op ATHENA
• Remote Viewing Terminal Op ATHENA

In addition the Data Link Communications project received TB approval in December 2006 and PWGSC received TB contract approval for radios in February 2007. The FMS cases for 1,300 radios have been accepted, initial delivery of equipment started in August 2008 and final delivery is expected June 2009. In February 2008, TB approved the ISTAR Electronic Warfare and Command and Control sub-projects. Implementation has now started. For the Command and Control sub-project action is being taken to effect an early delivery of an All Source Intelligence Center for support to the Vancouver Olympic and Paralympics Games; and of the G8 Summit.

The TUAV project was closed in June 2009 and the AWLS sub-project is scheduled to close in Nov 2009.

The LCMR FOC is tied to a US Army upgrade program. These activities are delayed due to US delays in contracting for the final retrofit of all US, UK and Canadian LCMR to fully meet the specification. There is no technical risk as the final implementation is already used for new system delivery to the US it is purely contracting process delay on the US side. The retrofit is required as we all took delivery of a late LRIP model to meet UOR schedule knowing we would have a retrofit program to meet FOC. This retrofit was planned to reduce fleet maintenance cost by having a single fleet to R&O instead of the current 4 fleets.

Industrial Benefits: Canadian industry benefit from the ISTAR project continues to be determined during the approval of the procurement strategy for each sub-projects. Canadian Industry has derived long term benefit from many aspects of the ISTAR project.

JOINT SUPPORT SHIP (JSS)

Description: The JSS will maintain the Canadian Navy's current naval task group logistic support, while ensuring that the Canadian Forces has an adequate, assured strategic sealift capability to allow it to deploy and sustain operations in support of government policy. It will also enhance Canada's capability for joint command and control of forces ashore. The ships will replace the two ageing Protecteur class support ships currently in service on the east and west coast.

Project Phase: Definition/Implementation

Prime and Major Sub-Contractors: No prime contractor has been selected. Final selection of the prime contractor will occur at Effective Project Approval.

Progress Report and Explanations of Variances: In August 2008, the Minister of Public Works and Government Services Canada (PWGSC) announced the termination of the initial procurement process to acquire three Joint Support Ships.

After receiving and evaluating the mandatory requirements for the Joint Support Ship Project from the bidders, the Crown has determined that both proposals were not compliant with the basic terms of the Request for Proposals (RFP). Among other non-compliances, both bids were significantly over the established budget provisions of $1,575B for the Project Implementation (PI) Contract for the delivery of the JSS capability (3 ships).

During the August 08 to March 09 timeframe, the Project Office conducted Options Analysis that examined cost versus capability of various options. Work continues on a recommended course of action for the JSS project with the aim of achieving a departmental decision as soon as possible.

Industrial and Regional Benefits: Industrial and Regional Benefits (IRBs) for this project are equivalent to 100% of the contracted value for both the capital acquisition and in-service support.

LIGHT UTILITY VEHICLE WHEELED (LUVW)

Description: Light utility vehicles are highly mobile and essential to facilitating the tactical command of combat, combat support and combat service support units, to assist in the gathering and dissemination of information and to liaise within and between field formations.

The LUVW Project mandate is to replace Canadian Iltis vehicles with two separate vehicle acquisitions: 1,159 Standard Military Pattern (SMP) vehicles (Mercedes Benz G Wagon) with integrated logistic support and 170 Armour Protection Systems ($241.4M), for use by field force units; and 1,061 Militarized Commercial Off-The-Shelf (Mil COTS) vehicles (GM Silverado) ($65.4M) for use primarily by the Reserve Force for a total project cost of $306.8M.

Project Phase: Implementation

Progress Report and Explanation of Variances: The project is in full Implementation. Outstanding issues are Amendment 2 to the SMP production contract and delivery of the Mil COTS battery disconnect switch kits. The amendment to the SMP production contract is required to reflect the costs resulting from Design Change Requests (DCRs), as well as additional ILS publication requirements. A contract valued at $1.71M (incl GST) was awarded to Kerr Industries in July 2008 for the delivery of 1,061 battery disconnect switch kits. These kits are required to isolate the electrical system and associated parasitic loads from draining the batteries when the vehicles are not in use. Final delivery is scheduled for March 2009, but it is anticipated that Canadian Forces (CF) Reserve units will not have the last of these kits installed by their local GMC dealership until December 2009.

For the SMP production contract, a total of $19.6M has been applied as holdbacks, which equate to 10% of all paid invoices. It is anticipated that the amendment will be completed and signed by October 2009, at which time these funds can be released.

An Initial Support Contract (ISC) (valued at $17.9M incl GST) was awarded to MBC in November 2005 to provide spares, R&O, lease of diagnostic equipment, support and engineering services, and 4th line vehicle repair, with the last (3rd) year option exercised in October 2007. This contract was amended (value increased by $0.77M) and extended to June 2009 at which time a new "bridging" ISC contract was awarded to MBC in June 2009 (valued at $9.3M incl GST) to allow continued support of the LUVW SMP fleet until the Long Term Support Contract (LTSC) (estimated value of $99M incl GST over 15 years) can be awarded.

A contract valued at $1.87M (incl GST) for Special Tools and Test Equipment (STTE) was awarded to MBC in November 2008. Delivery for STTE will commence in July 2009 to both depots with delivery to the base maintenance facilities completed by September 2009 at which time FOC will be declared. Once FOC has been declared, the project will begin the close-out process with project closure scheduled for December 2009 to coincide with the final installation of the Mil COTS battery disconnect switch kits.

Even with the above mentioned changes, the project is scheduled to close under the allocated funding of $298.4M. The vehicle fleet has been affected by body cracks and inferior weapons station design and quality issues. On the subject of vehicle body cracks, an agreement was arrived at to address vehicles with body cracks and those potentially at risk of developing future cracks. MBC has initiated a redesign of the weapons station to address these deficiencies, with the first two prototypes completed in January 2009.

Industrial Benefits: The industrial benefits are required for Phase 1 for a value 100% of the contract value. Latest report from Industry Canada indicates that Mercedes Benz Canada has exceeded the industrial regional benefit goals by $300M. There are no mandated industrial benefits for the Mil COTS contract. Industry Canada is working with MBC to identify regional components of the Industrial and Regional Benefits (IRBs) program under the Initial Support Contract (ISC). There will be an IRB requirement in the LTSC in the amount of 100% of the contract value.

MAIN BATTLE TANK (MBT)

Description: The purpose of the Tank Replacement Project is to replace Canada's aging Leopard C2 tank fleet with a modern, heavily protected, mobile, direct fire support capability. The Tank Replacement Project is divided into two phases. Phase 1 consisted of the loan of 20 Leopard 2 A6M Main Battle Tanks (MBT), two Armoured Recovery Vehicles (ARV) and logistics support from the German Government for immediate deployment to Afghanistan, as well as the purchase of 100 surplus Leopard 2 MBT from the Netherlands Government. Phase 2 consists of the repair, overhaul, upgrade and introduction of up to 100 Leopard 2 tanks and armoured recovery vehicles into service with the CF.

Project Phase: Implementation. The project received Treasury Board (TB) approval for Phase 1 in March 2007 and expects to receive Effective Project Approval (EPA) for Phase 2 by June 2009. Project constraints include a budget cap of $650M and the requirement for work to be done in Canada.

Progress Report and Explanations of Variances: The imperative to upgrade and deploy the borrowed tanks into Afghanistan to meet the July 2007 Initial Operational Capability (IOC) date required some performance trade-offs. Time was insufficient to develop, qualify, and implement a new passive armour solution and as a result, the 20 borrowed tanks deployed with new slat armour. Time was also insufficient to install air conditioning therefore a crew cooling vest solution was developed and implemented. Some Leopard 1 C2 tanks for use with implements remain in theatre as the Leopard 2 tanks are not designed to accept implements.

The work in support of the Effective Project Approval submission was a priority activity and TB approval for Phase 2 was received in June 2009. The feasibility study with Industry was cancelled by PWGSC, and a reduced technical study was completed by DND using in-house resources and liaison with Allied nations. The Leopard 2 tank capabilities and the Canadian performance requirements have been identified. The Letter of Interest announced the broad objectives of the Project and the Industry responses confirmed a competitive environment. The Price and Availability identified the core deliverables and obtained price and schedule information from Industry. The Effective Project Approval submission to Treasury Board included some indicative costs due to the nature of repair and overhaul activity.

Industrial and Regional Benefits (IRB): No IRBs were required for Phase 1. The IRB requirements for Phase 2 are 100 %, as recommended by Industry Canada.

MARITIME HELICOPTER PROJECT (MHP)

Description: The purpose of this project is to replace the CH124 Sea King with a fleet of 28 new fully equipped Maritime Helicopters bundled with a long-term In-Service Support contract and the modification of the HALIFAX class ships to accommodate the new Maritime Helicopters. This replacement will address the operational deficiencies of the current CH124, eliminate the supportability difficulties of the older helicopter, and provide a sufficient fleet size of multi-purpose shipborne Maritime Helicopters for operations well into the 21st century.

Project Phase: Implementation. In November 2008, the project marked the four-year milestone in the Implementation Phase. The project focus is now shifting from design and engineering to aircraft manufacturing and assembly followed by flight tests and delivery of the aircrafts.

Progress Report and Explanations of Variances: In December 2008, following discussions to minimize delays in the planned delivery of the integrated Maritime Helicopter, the Government and Sikorsky agreed to a new schedule for the delivery of helicopters starting in November 2010, with delivery of enhanced helicopters commencing in July 2012.

Other components of the project such as construction of the Training Centre building in Shearwater, NS, and ship modification work on HMCS Montréal have progressed well and are on schedule. The first test flight of the Maritime Helicopter occurred on November 15, 2008. The project is currently running within its authorized budget.

Industrial Benefits: The Industrial Regional Benefits are equivalent to 100% of the contract value for the capital acquisition and more than 80% of the contract value for the In-Service Support.

MATERIAL ACQUISITION AND SUPPORT INFORMATION SYSTEM (MASIS)

Description: The mission of the Material Acquisition and Support Information System (MASIS) project is to provide a Department of National Defence (DND) integrated materiel acquisition and support information system that enables the cost-effective optimization of weapon/equipment system availability throughout the life cycle. The scope of MASIS includes all end-to-end information requirements within DND/CF related to the materiel acquisition and support functions which are comprised of systems engineering, integrated logistics support (ILS), equipment configuration, technical data management, asset management, maintenance management, project management, performance management, operational support, business management, decision support analysis and contract management.

Project Phase: Implementation. To date the project has completed Phases 1 to 4 and implementation of Phase 5 is currently underway. Project completion is expected for 2012.

Progress Report and Explanations of Variances: Following Definition Phase approval, EPA for MASIS was granted to DND in June 2000 in the amount of $147.8M. This authority provided the project the means to cover the work under Phases 1 to 3, which have been completed.

The project follows a cyclical approval and delivery methodology. In December 2003, an additional $34.4M was approved to fund Phase 4 of the project, which has been completed. In June 2007, the MASIS project received Treasury Board approval in the amount of $170M for Phase 5. Phase 5 activities include the rollout of MASIS functionality to Army and Air Force. To date, Phase 5 activities are on budget and on time. Planned completion of project is within the 2012 timeframe.

Industrial Benefits: All industrial benefits are attributed to Ontario since all project expenditures occur in Ontario.

MEDIUM TO HEAVY LIFT HELICOPTER (MHLH)

Description: Over the last decade, the ability to move personnel and equipment by air has become a vital and growing capability requirement for the Canadian Forces in fulfilling a wide range of roles. Canadian Forces operational experience, particularly in current operational theatres, has highlighted the urgent need for medium to heavy lift helicopters to support land forces in a threat environment by quickly, efficiently and safely moving large numbers of personnel and heavy equipment from forward deployed bases, thus reducing their vulnerability to attack. Both at home and overseas, medium to heavy lift helicopters will provide the Government with a wider range of military options for addressing threats and emergencies beyond the Canadian Forces' current helicopter fleets.

The Medium to Heavy Lift Helicopter project will deliver the medium to heavy lift helicopter capability to support land-based domestic and international operations and to support Army Training on the road to high readiness. The project will acquire a minimum of 16 helicopters, integrated logistic support and other related support elements.

Project Phase: Definition

Progress Report and Explanation of Variances: With technical support from the Project Management Office, PWGSC commenced negotiations based on Boeing's proposal that was delivered in July 2008. Challenges in areas such as scope of work/cost reconciliation, Terms and Conditions, Industrial and Regional Benefits and In-Service Support competition plan have extended contract negotiations. Best efforts will be undertaken to obtain Treasury Board Approval to achieve contract award in June 2009.

Industrial Benefits: This procurement will provide Industrial Regional Benefits equivalent to 100% of the contracted value for both the capital acquisition and integrated in-service support. The Boeing Company is required to identify, as specific work packages, 60% of the total acquisition commitment prior to contract signing. For the integrated in-service support portion, 75% of the contract value will be direct work performed by a Canadian company. These industrial and regional benefits requirements will be negotiated and accepted by Industry Canada prior to contract signing.

MEDIUM SUPPORT VEHICLE SYSTEM PROJECT (MSVS)

Description: The Medium Support Vehicle System Project is a capability replacement project for the existing Medium Logistics Vehicle Wheeled (MLVW) fleet that has reached the end of its service life due to age, heavy usage and corrosion. The MSVS project will cost approximately $1.2 B (net of GST) and will deliver the following mix of vehicles:

• medium-sized Standard Military Pattern (SMP) vehicles:
  • Up to 1,500 vehicles, with options for an additional 650;
  • Up to 150 integrated armour protection systems, with options for an additional 150, and
  • Up to 300 companion military pattern trailers, with options for an additional 240.
• medium-sized Militarized Commercial Off-the-Shelf (MilCOTS) vehicles:
  • 1,300 commercial vehicles with militarized components, with options for an additional 500.
• Special Equipment Vehicle (SEV) Kits:
  • Up to 1,000 special equipment vehicle kits, with options for an additional 150.

Project Phase: Definition SMP and SEV Kits, Implementation MilCOTS

Prime and Major Sub-Contractors: One prime contractor will be selected for each project component. Final selection of the prime contractors will occur through Revised Preliminary Project Approvals (Rev (PPAs)) for MilCOTS Vehicles, SEV Baseline Shelters and SMP Vehicles followed by Effective Project Approval (EPA) for SEV Kits.

Progress Report and Explanations of Variances: In December 2008, PMO MSVS obtained Treasury Board expenditure authority for MilCOTS in the amount of $351.8M ($BY), plus GST and a Rev PPA for an indicative full-up cost estimate of $1.22B ($BY), plus GST for all components of the MSVS project.

• MilCOTS - Agreement in Principle was reached in August 2008 with the single responsive bidder. Rev PPA and contract approval was received in December 2008. Contract was awarded in January 2009.
• SEV Baseline Shelter - The SEV Baseline Shelter RFP was released to industry in May 2008 and the bid evaluation was completed in July 2008. Negotiations with the single responsive bidder are planned for completion in early 2009. Rev PPA planned for spring 2009 and contract award for this component is planned for Summer 2009.
• SMP - A revised draft technical specification was posted in November 2008 for industry comment. The complete RFP is planned for release in fall 2009.
• SEV Kits - The SEV Kits RFP is scheduled for release in early 2010.

Schedule delays have occurred and are attributed to delayed project approval and overall staffing shortages. Cost variances have also occurred and are attributed to the receipt of single bids for MilCOTS vehicles and SEV Baseline Shelters with higher than anticipated price proposals, volatile raw material market and fluctuation in foreign exchange rates.

At this time, Project Close-out is anticipated for Fall 2013. A continuous risk management program has been implemented and costing efforts for the implementation phase are progressing.

Industrial & Regional Benefits: Industrial Regional Benefits (IRBs) equivalent to 100% of the contract value will be required for each project component.

MILITARY AUTOMATED AIR TRAFFIC SYSTEM (MAATS) PROJECT

Description: A national air traffic system project to automate air traffic services has been initiated by Transport Canada (now NAV CANADA). To ensure that military air operations continue to function effectively, remain compatible with the national system, and keep pace with these enhancements, the Department of National Defence and the Canadian Forces established the Military Automated Air Traffic System (MAATS) Project. The project directly supports the defence objective of conducting air traffic control operations.

The MAATS project will provide the essential equipment and system interfaces necessary to automate data interchange between applications. The project will deliver a stable, sustainable, and operational Air Traffic Management System (ATMS) while providing as much integration as possible with NAV Canada's Canadian Automated Air Traffic System (CAATS). Where equipment or system interfaces are not currently available, new equipment will be installed. All existing Defence radar systems will be retained and interfaced to the MAATS as appropriate.

Project Phase: Implementation

Progress Report and Explanation of Variances: Treasury Board initially approved the project with an estimated cost of $179.2M. The project funding was reduced by $15M following departmental review. Partial return of funding was approved at the December 2003 Senior Review Board (SRB). Current departmental funding is $169.2M.

As briefed at SRB in June 2006, the MAATS project objectives were declared unachievable within the existing funding envelope. Given a number of alternative options, the MAATS' Project Management Office (PMO) recommended to cease MAATS development, and continue the project with the implementation of an "in-house" solution coined Phoenix. With the support of the Chief of the Air Staff and ADM(Mat), the Project Management Board (PMB) concurred with the PMO's recommendation in March 2007. MAATS' PMO was directed to de-link the project from NAV Canada's Civilian Automated Air Traffic System (CAATS); concentrate on the re-vitalization and integration of Air Traffic Controller (ATC) information sources at each of the seven wings (Comox, Cold Lake, Moose Jaw, Bagotville, Trenton, Greenwood and Goose Bay); keep military Instrument Flight Rules (IFR) operations at the Wings vice at two Military Terminal Control Centres; and pursue the development and fielding of the Phoenix solution.

Since the approvals were received in July 2007, the Phoenix solution is well on its way upgrading the current Air Traffic Management System capability inclusive of the following sub-systems: the Radar Processor, the Navigational Aids and Meteorological Sub-System (NAMS), the Air Movement Statistics Package and the Flight Data System. Phoenix is based on the proven Radar Processing Display System II (RPDS II), which was certified for Operational Airworthiness and built on standard commercial off-the shelf (COTS) hardware and open source software, thus keeping technical risk LOW. Installation of Phoenix equipment (NAMS II) at 8 Wing Trenton was completed and Provisional Operational Airworthiness Clearance (POAC) was granted in October 2007, ahead of schedule. Actual close out activities, including a project completion report to Treasury Board, will be completed in fiscal year 2009-10.

PMO implemented the last site (Goose Bay) in May 2009 with NAMS II, Frequentis integration voice comms switch and Control Tower Consoles Revitalization. All sites are now synchronized with same technology and interfaces. The Vancouver 2010 Olympics shifted ATESS personnel priorities which has delayed the delivery of some REDDS capabilities development. Currently, Flight Data Entry Terminal (FDET II) which will address flight data processing is the last capability being developed under the project scope with its fielding to occur as a matrix task completed by the LCMM. PMO plans to close the MAATS Project on schedule with the full LCMM in-service support of REDDS in 2009 as its remaining objective.

Industrial Benefits: Canadian industry in the following regions of Canada will benefit from the MAATS project.

PROTECTED MILITARY SATELLITE COMMUNICATIONS (PMSC)

Description: The Department of National Defence and the Canadian Forces require global communications that are secure, guaranteed and directly interoperable with our allies. The aim of the Protected Military Satellite Communications Project (PMSC) is to overcome current Canadian Forces interoperability and global command and control limitations. Upon completion, this project will enable long-range communications to deployed forces and facilitate their interoperability with allies.

Project Phase: Implementation. The PMSC project is being implemented in two phases with project completion expected for Winter 2017.

Progress Report and Explanations of Variances: The PMSC project is being implemented in two phases. In Phase 1, the satellites are being procured under the terms of a Memorandum of Understanding (MOU) with the United States Department of Defense (DOD) that guarantees Canadian participation in their Advanced Extremely High Frequency (AEHF) system. Definition studies for the terminal segment were completed in Phase 1. Under Phase 2, the terminal segment is being procured and will be installed and tested starting in 2011.

In August 1999, Treasury Board granted Preliminary Project Approval to the PMSC Project, with expenditure authority for the implementation of Phase 1 at an estimated cost of $252M and granted approval for the Department of National Defence to enter into a Military Satellite Communication (MILSATCOM) MOU with the US Department of Defense. The MOU was signed in November 1999.

In November 2003, Treasury Board granted Effective Project Approval to the PMSC Project, with expenditure authority for the Implementation of Phase 2 at an estimated cost of $300M. The total cost is now estimated at $552M. The project is on budget.

Industrial Benefits: Under Phase 1, the US Department of Defense has committed to a work share with Canadian industry proportional to our contribution. Suppliers from both nations will be permitted to bid on project work. In Phase 2, the Senior Procurement Advisory Committee (SPAC) endorsed that Terminal acquisition and support will be procured through Foreign Military Sales with installation done through DND managed contracts. Industrial and regional benefits will be sought by Industry Canada at 100% of contract value.

SUBMARINE CAPABILITY LIFE EXTENSION (SCLE)

Description: The Submarine Capability Life Extension (SCLE) project replaced the Oberon class submarine fleet with four existing British Upholder class (renamed Canadian Victoria class) submarines. The project will ensure that Canada preserves its submarine capability within the existing capital budget. The project supports Canada's ability to conduct surveillance and control of its territory, airspace and maritime areas of jurisdiction, as well as Canada's ability to participate in bilateral and multilateral operations.

Project Phase: Implementation. The project has delivered four functional Victoria class submarines with up-to-date, safe-to-dive certificates, four crew trainers (including a combat systems trainer, a ship control trainer, a machinery control trainer, and a torpedo handling and discharge trainer), and four trained crews. Canadianization of three platforms and twelve of seventeen associated projects have been completed. The last platform (HMCS CHICOUTIMI) will complete Canadianization during her Extended Docking Work Period (EDWP) which is scheduled to commence in January 2010 and the remaining five associated projects will be completed by project closure in March 2013.

Progress Report and Explanation of Variances: Effective Project approval was granted to the SCLE project in June 1998 at an estimated total cost of $812.0M (BY) net of GST. The expenditure ceiling was increased by $84.8M by Treasury Board in June 2003 to accommodate increased scope to include 17 submarine related projects and initiatives that were progressing outside the bounds of SCLE. SCLE project is currently expending to budget.

Canada has accepted all four Upholder submarines from the United Kingdom. The operational status of each of these vessels is summarized below:

• Her Majesty's Canadian Ship (HMCS) Victoria is currently undergoing an Extended Docking Work Period (EDWP) at Fleet Maintenance Facility (FMF) Cape Breton. She is scheduled to undock in November 2009 and complete this activity in May 2010.
• HMCS Windsor is currently undergoing an Extended Docking Work Period (EDWP) at Fleet Maintenance Facility (FMF) Cape Scott. She is scheduled to undock in late 2010 and complete this activity in 2011.
• HMCS Corner Brook is operational and is participating in various exercises and patrols. Barring a six-month docking period commencing September 2009, she will remain operational until mid 2011.
• HMCS Chicoutimi was handed over to Canada in October 2004 and while en-route to Canada, she had an electrical incident at sea that resulted in a fire and was returned to Canada via sealift. Although some of the repairs have been completed, a decision was taken to delay the completion of the repair and Canadianization until her EDWP. HMCS Chicoutimi was signed over to the Canadian Submarine Management Group (In Service Support Contractor) in June 2009. Her EDWP is scheduled to commence January 2010.

Based on progress to date and current information, all performance objectives of this contract will be met within the allocated budget.

Industrial and Regional Benefits: This project will provide an estimated $200M in direct and indirect industrial benefits. This includes Canadian modifications to the submarines and the relocation of the simulators and trainers to Canada. A further $100M in industrial benefits has taken the form of waivers to provide industrial offsets in the United Kingdom for Canadian companies bidding on defence contracts.

Summary of Transfer Payment Programs by Program Activity

Sustainable Development Strategies

The following table reports on progress made by National Defence towards the commitments made in the fourth iteration of the Defence Sustainable Development Strategy. A certain number of these commitments also support the federal Greening Government Operations agenda. These departmental commitments are coordinated by the Office of Greening Government Operations (OGGO) at Public Works and Government Services Canada (PWGSC), which includes work toward common governance, measurement, and reporting methods across departments.

Green Procurement

Responses to Parliamentary Committees and External Audits

Internal Audits and Evaluations

Internal Audits (current reporting period)

The following table lists the internal audit work completed during fiscal year 2008-09, as well as the audit work active in fiscal year 2008-09 that has carried forward into fiscal year 2009-10. Completed audit reports, which include management action plans developed in response to audit recommendations, can be found at the following link: http://www.crs-csex.forces.gc.ca/reports-rapports/index-eng.asp

Evaluations (current reporting period)

The following table lists the evaluation work completed during fiscal year 2008-09, as well as the evaluation work active in fiscal year 2008-09 that has carried forward into fiscal year 2009-10. Completed evaluation reports, which include management action plans developed in response to evaluation recommendations, can be found at the following link: http://www.crs-csex.forces.gc.ca/reports-rapports/index-eng.asp