The New Deal

NPP Board

18 Sep 07

R.J. Smith, CFO

CDS Guidance – Jan 04

• Equitability

• Range of Services

• Availability

• Accessibility

• Pricing

• Location considerations

Current Situation

NPP revenue distribution, user fees, capital expenditures, management and operational models do not support fair and equitable access to programs and activities

– Implied by NDA

– Required by CDS Guidance – Jan 04

Challenges• Focus on Base/Wing vice CF Member

• Distribution of Nationally Generated Funds (and Services) to Bases/Wings

• NPP Capital Expenditures

• Administration of NPP programs and activities in deployed operations

• CANEX – capital expenditures and fund distribution

• Specialty Interest Activities and Messes – operational and investment decisions

• Performance Management

Challenges

Focus on Base/Wing vice CF Member

– ‘Have’ / ‘Have Not’ Bases and Wings

– Bases/Wings compete to have most resources

– At odds with equitable access

Challenges

Distribution of Nationally Generated Funds (and Services) to Bases/Wings

– CANEX/SISIP Grant Program (includes royalties)

– User fees for accounting, HR, IM/IT, insurance

– Distribution creates large inequities, difficult to explain and understand

– CBA interest

Challenges

NPP Capital Expenditures

– No capital plan

– Inequitable distribution of infrastructure

– Inadequate re-investment

– CFCF loan repayment difficulties / defaults

– Overbuilt projects (competition)

Challenges

Administration of NPP programs and activities in deployed operations

– CFCF financed, CFCF liabilities

– Profits to units, losses to CFCF

– End rotation spending / gifts

– Units under altered circumstances

Challenges

CANEX – capital expenditures and fund distribution

– Decision making based on entity profit loss vs national system approach leads to store closures

– Ignores contribution approach

– Micro investment approach

• 135 CFCF Loans; $12.5M

– Fund distribution based on sales – incongruent local influence

– Many small units no CANEX facilities

Challenges

Specialty Interest Activities and Messes – operational and investment decisions

– Operated as independent financial entities

– Operational and investment decisions made within context of individual outlet

– Inconsistent service/product offering

Challenges

Performance Management

– Criteria for equitable access, program funding / distribution or capital administration not well defined

– Relationships between Public / NPP, national and Base/Wing contained in several policy documents, but not in coherent performance management framework

Proposed Remedial Action

• Net funding distribution based on relative size – eliminate current royalties, grants, user fees

• Nationalize NPP capital program – eliminate CFCF loan program

• Rationalize / nationalize CANEX capital program, complete nationalization of CANEX operations

• Nationalize management of Specialty Interest

• Nationalize management of Messes

• Treat deployed operations as national program

• Integrate reporting requirements

Proposed Remedial Action

Net funding distribution based on relative size – eliminate current royalties, grants, user fees

Why – current system complex, inequitable, and no local influence on net results. Considerable overhead to administer

Action Required – establish 6 relative size categories for Bases/Wings with identical net funding, 3 year funding base

Expected Results – stable predictable funding leading to improved planning / programming. Identical funding for comparable units should lead to more equitable access

Proposed Remedial Action

Nationalize NPP capital program – eliminate CFCF loan program

Why – local driven approach has led to inequitable infrastructure distribution; CFCF loan program broken

Action Required – write-off existing CFCF loans; discontinue CFCF loan program; establish national NPP capital program; transfer all NPP capital infrastructure to CFCF (or relevant line operation)

Expected Results – systematic approach to developing and maintaining a fair and equitable distribution of NPP infrastructure. No requirement to accumulate large CBA balances

Proposed Remedial Action

Rationalize / nationalize CANEX capital program, complete nationalization of CANEX operations

Why – current approach leads to sub-optimal investment and operational decisions

Action Required – discontinue treating outlets as independent financial entities; financial entity is CANEX

Expected Results – a positive change in organizational behaviour that will enable CANEX to provide a broader array of goods and services at more locations and in response to local needs and requirements

Proposed Remedial Action

Nationalize management of Specialty Interest

Why – all operated as independent financial entities; little consistency from location to location; investment and operational decisions determined by transitory local leadership

Action Required – establish specialty interest as a national line operation with local member committees

Expected Results – system approach would change focus from each outlet being profitable to system being self-sustaining. Greater flexibility on how programs and activities could be delivered. More consistent equitable access. Administration efficiencies

Proposed Remedial Action

Nationalize management of Messes

Why – all operated as independent financial entities; inconsistent operations including level of mess dues and services.

Action Required – establish Messes as a national line operation with local Mess Committees. Financial results by Mess type would be determined nationally vice locally. Consolidate Mess back office operations

Expected Results – system approach should lead to greater consistency. Economies of scale and back office savings should enable mess dues to be lowered across the board. Approach consistent with NPP contracting policy and the Customer Relationship Management philosophy. No adverse impact on Base/Wing funds

Proposed Remedial Action

Treat deployed operations as national program

Why – significant in scope, complexity and financial worth, require significant up front investment, management and accountability expertise

Action Required – retail operations would become CFCF operations. In-theatre pricing, programs and activities guaranteed; end of rotation profits accrue to CFCF for national redistribution. Kit shops operated on behalf of units

Expected Results – more equitable availability of NPP programs and activities in all deployed ops. Consistent with overall NPP approach

Proposed Remedial Action

Integrate reporting requirements

Why – performance management and measurement criteria needed to assure CDS guidance are being met

Action Required – establish Consolidated MW – Partnership Obligations and Reporting Requirements by integrating several current reporting methodologies

Expected Results – projects, targets and milestones established to achieve more equitable access to NPP programs and activities with progress being measured

Decisions Requested

• Approve New Deal as follows:

– Net funding distribution based on relative size – eliminate current royalties, grants, user fees

– Nationalize NPP capital program – eliminate CFCF loan program

– Rationalize / nationalize CANEX capital program, complete nationalization of CANEX operations

– Nationalize management of Specialty Interest

– Nationalize management of Messes

– Treat deployed operations as national program

– Integrate reporting requirements

Questions?