March 10, 1939 (18th Parliament, 4th Session)

LIB

Ian Alistair Mackenzie (Minister of National Defence)

Liberal

Mr. MACKENZIE (Vancouver):

I was referring to the John Inglis Company.
I do not think I shall take the time of the house to deal fully with the machinery which has been adopted to give every possible safeguard by the Department of National Defence. I shall refer only to one contract which was let before the interdepartmental committee was established. I shall outline the precautions which were taken by the department before the committee was set up and which I think were commented upon by the Skelton committee in the extracts which I have submitted to this house.
The special provisions introduced in this contract were numerous. It was stipulated that in the event of emergency the crown could diminish or increase the number of aircraft covered by the contract. It was stipulated that the crown could take over the plant and require that, in substitution for aircraft, other articles capable of being manufactured by the contractor be supplied. Under a supplementary agreement it was provided that if orders at a lower price were accepted from others for similar aircraft, the price to the crown would be reduced proportionately. It was provided that to the extent that the 71492-1X1
cost of any special machinery, tools, dies, et cetera, was included in the purchase price of aircraft covered by the first contract, the purchase price of similar aircraft in any succeeding contract would be reduced accordingly. It was provided that in the event of the company entering into any other contract, the crown should have the right to have its aircraft manufactured in priority.
These were safeguards of an entirely new type devised by the department itself to protect the public interest. To my mind, which may be prejudiced, they indicate that the department, in pioneering a new field and in seeeking to develop for the security of this country an entirely new industry, was using its utmost ingenuity to keep strict control over the industry. It should be stated that in negotiating the price of the aircraft, both the government and the company had the advantage of knowing the costs in the old country where the parent airplanes were being manufactured, and it was possible to arrive at an approximate estimate of the extent to which these costs would be varied by Canadian conditions.
Then, as to national ownership, I wish to say a word or two as to some of the difficulties which might confront the Department of National Defence should we accept the principle of national ownership. In the old days it was the practice of the Department of National Defence to procure most of its technical equipment by purchase from the war office, the admiralty or the air ministry. During the war of 1914-18, Canada, as we all know, produced large quantities of munitions, but it is sometimes not realized that although the quantity was large the varieties were within a very narrow range. Canada employed her industrial resources in the production of shells, and to some extent, explosives. Weapons were not manufactured in Canada, and, with the exception of the Ross rifle, never have been.
When the present government took office the dominion arsenal at Quebec was equipped for the manufacture of small arms ammunition and of some of the components of certain limited types of light artillery ammunition. The Lindsay arsenal had been closed down since the war. The department had on order from the old country a number of articles of technical equipment, but the present government was advised that the delivery date would be several years in the future. The practice of the department being to order its requirements from the old country, we speedily learned that this was not going to be possible or practicable with regard to any speedy

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measures of improving the defences of Canada. Great Britain, as we all know, had embarked on a heavy rearmament program and was utilizing the full resources of her own industrial capacity.
The department was faced with the necessity of developing sources of production within' Canada for articles of military equipment never before produced in this country. The question whether production should be by expansion of the government's own arsenal plants or by the utilization of private industry was very carefully and very seriously considered. As I suggested in my remarks before the royal commission, there were two schools of thought in the Department of National Defence. Certain senior officers were strongly in favour of the development of government arsenals. Others of equal senior rank pointed out that the capital cost of constructing and equipping the several plants advocated would fun between $30,000,000 and $35,000,000. These officers considered that having regard to the probable funds available the cost and delay involved in proceeding by state manufacture would be prohibitive.
The matter was then considered at great length by the government. I think I am safe in saying that on principle the government favoured state manufacture. However, at that time we were faced with a most serious financial problem. There had been a long series of heavy budgetary deficits in Canada between 1930 and 1935, and there was at that time the utmost necessity of restoring public finance at least to a state of approximate equilibrium. The funds made available for the Department of National Defence in each of the years 1937 and 1938 totalled approximately $35,000,000.
The decision made then was to proceed with the expansion of the dominion arsenal with respect to the production of commodities for which a fairly constant demand over the years might be anticipated. This ensured that full use would be made of any expenditures on capital account and that continuous employment would be afforded to skilled labour assembled for the purpose.
With regard to the very large scheme of erecting plants for the manufacture of small arms, artillery guns and other costly technical equipment for which the total requirements of the country were limited, this is best illustrated by the results of the decision reached. Had we, Mr. Speaker, adopted the suggestion made by some hon. members of the house at that time when the estimates were before it, of state production along the lines suggested by those who were advocating

this grand arsenal scheme in the dominion, that entire $30,000,000 during the past three years would have been required to construct and equip the necessary plants. What would we have lost? Instead of that we have acquired:
1. Four new destroyers and four minesweepers for the navy, and
2. Two hundred new aircraft.
3. We have established a system of fortifications on the Pacific coast, to be completed next year.
4. We have doubled the strength of our naval and air forces.
5. We have purchased a great deal of miscellaneous equipment for the militia.
6. We have increased the training of our militia forces in Canada.
7. We have developed new air stations and have augmented the facilities at the stations already established.
8. We have greatly increased the production of munitions, and we have augmented our supplies of all kinds of ammunition and other necessary military equipment.
Had we used our money on the construction of arsenals, we should have had none of this equipment with the funds at our disposal. I leave it as a cold business proposition to the fair and unbiased judgment of hon. members of this house.
9. During the last three years we have increased the output of the Quebec arsenal from four to six or seven times what it was in several commodities when we took office.
10. The government's own plants have been used for assembling anti-gas respirators, an operation never before undertaken in Canada.
11. We have begun the utilization of the Lindsay arsenal after twenty years of idleness, and propose that that development shall be continued and extended.
I come now to another point. I have been criticized in this house and outside with reference to not calling for competitive bids. I wish for a moment or two to compare the records of the two governments. The first instructions I gave to my officials in 1935 when I assumed the office of Minister of National Defence were that tenders were to be invited by advertisement wherever possible in regard to contracts over $5,000. Contracts, Mr. Speaker, in the Department of National Defence, may be handled in five ways:
1. By public advertisement.
2. Through selected bidders.
3. Through the war office, admiralty and air ministry.

Defence Purchasing Board
4. Through sole manufacturers. This is usually for the replacement of parts.
5. Through submission to the interdepartmental committee in certain circumstances where competition is considered unavailable.
Where the department has to deal with sole competitors or with a particular manufacturer, there is no choice. There was no interdepartmental committee to review contracts in the days of the previous administration, so that method can be left aside for comparative purposes. But where competition is possible it is desirable that the widest possible competition be obtained, and the present government decided, having regard to the record of the previous administration, that there should be a change of practice.
Taking only those cases, in contracts over $5,000, where competition is possible, the following is the record of the late administration during the four and a half years from April 1, 1931, to October, 1935.
Mr. MacNiICOL: The minister is starting something new. What is the use of rehashing what has been done prior to 19357

Topic:   NATIONAL DEFENCE
Subtopic:   CREATION OF DEFENCE PURCHASING BOARD TO ENTER INTO CONTRACTS FOR MUNITIONS, EQUIPMENT, MATERIALS AND SUPPLIES
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