The government is actively searching for a new top military commander to succeed General Tom Lawson after he asked that his three-year appointment not be extended.

Sources say Ottawa is now talking to prospective candidates to find the next chief of the defence staff.

"Interviews are happening," a source, speaking on condition of anonymity, said.

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This changing of the guard comes at a critical time for the Canadian Armed Forces, which are grappling with a budget squeeze, difficulties buying new equipment and the challenge of managing a peacetime army that, aside from a detachment of special forces troops in Iraq, is largely out of the fight.

Gen. Lawson will serve out his three-year term, which ends this fall, but he has made it known he wants to leave at that time, a second source said. Predecessor Walter Natynczyk's tenure lasted four years and three months, by comparison.

Gen. Lawson, a former CF-104 Starfighter pilot, turns 58 this year. His tenure began in October, 2012. He's presided over a military struggling with cutbacks and recruiting while mounting an aerial combat mission in Iraq as well as air and sea deployments to help the NATO alliance counter Russian aggression in eastern Europe.

The handful of three-star generals or flag officers in the Forces are the most likely pool of candidates to replace Gen. Lawson. They're lieutenant-general or vice-admiral rank.

They include: Marquis Hainse, Commander of the Canadian Army; Mark Norman, Commander of the Royal Canadian Navy; Guy R. Thibault, Vice-Chief of the Defence Staff; Jonathan Vance, Commander of Canadian Joint Operations Command; Michael Day, Deputy Commander Allied Joint Force Command Naples; Bob Davidson, Canada's Military Representative to NATO in Brussels; and Alain Parent, Deputy Commander at NORAD. Michael Hood is shortly replacing Yvan Blondin as Commander of the Royal Canadian Air Force.

Canadian politicians have overwhelmingly preferred appointing army or air force officers to serve as chief of the defence staff in recent decades. The last top military commander from the navy was appointed 18 years ago and this was an acting role only. Prior to that, the previous naval appointment was 22 years ago for one year.

Whoever takes over from Gen. Lawson will have his or her hands full.

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The military faces pressing needs to re-equip its aging forces including fighter jets, supply ships and search and rescue planes but has been unable to purchase what it needs in a timely fashion.

Last year, the Canadian Armed Forces faced allegations of sexual abuse in the ranks, documented by media investigations, and Gen. Lawson responded by launching an independent review. That review, led by former Supreme Court justice Marie Deschamps, is expected to report this spring.

The Forces must also confront internal morale problems including lingering concern after controversies over the treatment of veterans and mentally ill Forces members that Canada is not adequately providing for those injured mentally or physically by the job. The government said it's worked to rectify things in recent years.

"There's a feeling amongst the troops that we're in a bit of a nose dive in terms of promises that haven't been lived up to. Like care of the ill and injured. It affects morale enormously," one military source said.

Another challenge for the next chief of the defence staff is the Canadian Army. It's the largest component of the Canadian Armed Forces and has had to come to terms with a much slower tempo of military life after combat operations in Afghanistan ended in 2010. This drives soldiers to quit.

The Conservative government has put a lot of emphasis on the battle against the Islamic State in Iraq but Canada's army is largely absent from this effort – mainly waged by the Royal Canadian Air Force – except for rotations of special forces troops in northern Iraq.

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"The army is the bulk of the troops and they're kind of sitting on the sidelines. There are bases of soldiers not being gainfully employed, other than training, and that always creates a leadership challenge," the military source said.

Among the managerial headaches for the Forces today is money after the federal government cut into its appropriations to help balance the budget. "They have significantly less of it than they were supposed to, or they had even a few years ago," David Perry, senior analyst with the Canadian Defence & Foreign Affairs Institute, said.

He says this has reduced the army's training and the flying hours available for air force personnel.