Obviously I have to avoid any specifics about the Halifax-class modernization, because bids close next week.
Two members have asked questions about costing and how we determine reasonable cost estimates. It is a very rigorous process. DND historically has been very successful at estimating costs and not exceeding those costs and having to go back to government for additional money or authority to spend money. Some of our NATO allies have routinely had enormous problems with major programs that have been over budget and dramatically late. I'm not going to attribute any examples to my colleagues internationally, because I'm a national arms director and I deal with the other countries' national arms directors.
We normally determine the initial indicative costings through third-party analysis by engineering firms that professionally do this for a living . We look at similar projects that are being done or have recently been done worldwide, whether it's shipbuilding or aircraft. We talk to our allies to get a sense of what they have paid for transport aircraft. They will not give you a contract price because there are industrial confidences there, and they won't disclose that.
We add reserves for unexpected contingencies--for currency escalation or deflation. We add costs for our project management expenses. We cost down to the individual trip and the salaries of individuals in our project management teams. Our finance organization estimates inflation escalation factors by type of technology, and they do it very rigorously. However, it is a bit of a black art estimating or guesstimating where a certain piece of technology will inflate in cost, or not inflate in cost, relative to how GDP and other factors are changing. So it is a bit of an art; it's not a precise science.
We add a lot of contingency--normally 25% in the initial pass to Treasury Board. Then we go out and do options analysis. We put out letters of interest to industry. We get prices and availability from industry. We give them the requirements and ask them what they think it will cost. Then we go back to either run a formal request for proposal and get firm contract prices from industry, or ask Treasury Board for effective project approval up to a given limit, with a high degree of assurance that the bid prices will be within that limit.
Is it always perfect? I could give you a dozen examples where none of our projects went over. We're returning hundreds of millions of dollars back to the Vice-Chief of Defence Staff to reprogram for other requirements.
Occasionally market forces change very quickly and you get surprised. Industry may give you price and availability numbers, and then give you a bid price that's significantly different. That's their choice. They have played that tactic for a certain reason. So occasionally you do get surprised.