Jonathan Rowe

“Mr. Speaker, we all support better defence procurement in equipping our military. Today I would like to use my time to suggest a number of protections Parliament should put in place as regards Bill C-40 before we grant sweeping financial and procurement powers to the Defence Investment Agency through this bill. As currently drafted, there are still some important and, as of yet, unanswered questions about governance that I believe we need to address if we are to do the best we can for those who risk their lives on a daily basis for our freedoms. Bill C-40 is the Liberals’ third incarnation of the Defence Investment Agency in just one year. In May, the DIA was to be an agency under direct ministerial management. Five months later, it has been reimagined as an independent Crown corporation. DIA investments will be supported by public capital, also known to Canadians as “our money”. Government purchasing power and regulatory decisions will be used to de-risk private investments. I submit that Canadians providing the money and assuming the risk inherent in de-risking deserve to know that our military, not private investors, is going to reap the rewards. Let us consider one scenario that could happen under Bill C-40. Let us say the DIA acquires shares in an American manufacturer with the finance minister’s approval, because there are no actual “invest Canadian” requirements in this bill. Private equity funds and pension funds may also own shares. The agency then awards that manufacturer a substantial defence contract, perhaps even without a competitive bidding process, where an applicable exception permits it through the bill. Now suppose a competing Canadian manufacturer develops a better product at a lower price. The DIA will have a choice. It can award the contract to the competitor, potentially reducing the value of its own investment, or it can continue supporting the company in which it has a financial interest. This creates the potential for conflicting incentives within the same institution, and there are no provisions in the bill to ensure that the objective of equipping our military with the most appropriate option at the best possible price would supersede the competing objective of growing the DIA investment portfolio. That is why Parliament should insist that procurement decisions and investment decisions be made independently, with additional scrutiny when the DIA proposes awarding a contract to a company in which it holds an ownership interest. It should also establish clear financial rules governing those investments. The government should not be able to take on disproportionate financial risk while private investors enjoy most of the upside. Independent valuations, limits on financial exposure and a requirement to demonstrate that ordinary Canadians are receiving a fair return for the support they provide should all be enshrined in this bill. From a governance perspective, the DIA can have a board of as few as three directors, including the executive chairperson, the CEO and the deputy minister. There is no guarantee of any independent directors, let alone an independent majority. While ordinary audit requirements apply, there is no mandatory audit, investment or risk committee. More remarkably, the transition provisions allow the first executive chairperson to exercise all the powers of the board alone until such time as additional directors may be appointed. Especially in light of the competing investment objectives I identified earlier, Parliament should amend this bill to provide for independent directors, mandatory financial risk oversight and a prohibition on major investment decisions until that governance structure is in place. Executive compensation is another area that should also be examined closely. Cabinet determines base remuneration, but the bill does not establish how executive performance will be assessed. Compensation incentives can produce very different decisions. Will bonuses reward the amount of capital investment, the financial performance of the portfolio or the delivery of equipment to our military? Parliament should be able to ensure that the DIA is primarily focused on serving our military and protecting Canadians. That brings me back to the Prime Minister’s initial decision to appoint an investment banker rather than someone with a defence procurement background to lead this corporation, because it tells us something about the government’s ambitions for this institution. The government would not simply be creating an organization to buy military equipment. It would be creating an institution that could also finance the businesses and industrial capacity behind that equipment. The inherent competition between those objectives makes conflict of interest rules especially important here. The DIA would interact with banks, investment funds and companies whose executives may have long-standing professional relationships with its leadership. Enforceable and transparent disclosure and recusal procedures, including rules for transactions involving former employees, clients and business associates, should apply to everyone making investment and procurement decisions. We have already seen what can happen when government financing organizations operate without effective conflict of interest controls. In 2024, the Auditor General identified 90 cases at Sustainable Development Technology Canada in which conflict of interest policies were not followed, involving decisions on nearly $76 million of funding. Parliament should have learned something from that experience. Bill C-40 contains very broad exceptions to competitive procurement, including contracts intended to support strategically important Canadian industries and products previously supported by government research funding. There is no question that some exceptions are necessary in defence procurement where national security or urgent operational requirements can impact the calculus. However, Parliament should ensure that the normal governance safeguards are put in place: requiring written justification, offering the possibility of independent review and appropriate reporting when competition is bypassed. We also need to address ministerial directions. Section 9 would allow the minister, or the assistant minister and associate minister in this case, to direct the corporation’s activities and require the corporation to comply, yet there would be no equivalent express requirement to table those directions in Parliament. That would create an uncomfortable arrangement where the corporation is supposed to have commercial independence but ministers retain substantial influence without the transparency normally associated with formal directions to Crown corporations. All material ministerial directions should be documented and disclosed, subject to legitimate national security restrictions. The same principle applies to the corporation’s finances. Bill C-40 would provide a revolving $1-billion payment authority for the corporation, a separate $1-billion authority for ministerial activities, and the possibility of loans from the Minister of Finance. Those provisions would not establish a single overall limit on the corporation’s financial exposure. The bill should provide for a complete accounting of the available funding mechanisms, the limits on borrowing and guarantees, and the source of funding for equity acquisitions. Parliament should receive regular reports showing how much money has been invested, who has received it, the value of outstanding guarantees, the losses incurred and the returns earned. Canadians should be able to understand what has happened to their money. Bill C-31 provided for a legislative review within three years. Bill C-40 would extend that period to five years. With that, the government would be creating a more complicated financial institution, while waiting longer to see whether it is working. That should be corrected. Canada needs a more effective defence procurement system. We need our military to be properly equipped, and we should be developing Canadian industrial capacity wherever it makes strategic and economic sense, but the priority must remain the defence of Canada and the interests of Canadian taxpayers. Governance matters. Many of the provisions I have spoken about today may be quite dry, but they are very important. It is not just conflicts of interest that matter. It is also the appearance of those conflicts. When government acts as investor, lender, guarantor and customer, the opportunities for private profit can be substantial, and so can the opportunities for financial losses, poor procurement decisions and preferential treatment. The government has decided it wants to use these powers. The responsibility of Parliament now is to ensure that they are exercised under rules that protect the public interest. The Defence Investment Agency should not become a place where private investors get the financial rewards of government decisions while ordinary Canadians are left paying the bills. I submit that we have opportunities to improve the governance provisions in these bills and that we ought to do exactly that.”