Government Operations Committee on March 8th, 2021

[Yves Giroux]

We used a model based on different parameters to estimate the total cost of a ship procurement program. We used it to determine, in retrospect, what the results would have been if we had used that method for the costs that are already known. As an example, we considered procurement programs that have already taken place elsewhere in the world. In certain cases, the costs are an additional 20%, in other cases the costs are negative, or -20%.

That is how we estimated our confidence interval. The cost estimates we show in our report are the midpoint of our estimates. Possibly, there may be an additional 20% or savings of 20%. Our model shows that midpoint, using the figures in the report.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Let me make sure I fully understand. Using the example of the type 26 ships, the worst-case scenario would be that the costs are 20% higher than $77.3 billion and, in the best scenario, the costs would be 20% lower than the $77.3 billion.

Is that what you said?

[Yves Giroux]

That is exactly what I said.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you.

[The Chair, Conservative, Robert Gordon Kitchen]

We will now go to Ms. Vignola for two and a half minutes.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

My last question was about the four years that this has taken in order to design the process. Let's say the government decides to completely change the model and to procure the FREMM.

Could any parts of that four-year process be used again with the FREMM or would they have to start from scratch once more?

Did you do any calculations for that?

[Yves Giroux]

Our assessment was that, if the decision to start again was taken in October, it would take about four years to get more or less to the point where we are now, in terms of the tendering and design process. Some parts could probably be used again, but I am not convinced that there would be a huge number of them. If there are a lot and the process can be accelerated, so much the better, the costs will be reduced, but I don't believe that that is likely to be the case.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

In terms of the skyrocketing costs, we can understand that it's generally due to inflation. However, I imagine that opinions about armaments change and that the functions of the ships are also a consideration.

What space in the budgets did the armaments on each of the ships take up?

[Yves Giroux]

Since defence is an area with a lot of secrets, for obvious reasons, inflation is a little greater. Not many information items or best practices are exchanged. It's not like other areas, where you can easily buy the competitors' products, disassemble them and see the improvements that can be made to our own assembly processes, as a result of what we discover.

That's one of the reasons for the inflation in defence matters. It's difficult to adopt best practices from others, or at least to adopt them as easily as can be done in other manufacturing sectors.

Armaments are an important factor, of course. The other factor is construction materials. These materials are often very specialized and they cannot be easily reused for other purposes.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

Now we have Mr. Green for two and a half minutes.

[Matthew Green, NDP, Hamilton Centre, ON]

I still can't seem to get off the tax thing. I can't share with you how much that's bothering me, so I'm going to cut to the chase here.

What information did DND provide to you to assist with your report, and did they withhold any information, in your opinion?

[Yves Giroux]

In my opinion they provided all the information that we needed.

There was a lot of back and forth, of course, because it's not a simple project. We cannot just get a two-page document or an Excel spreadsheet, but they provided all the information that we needed.

We didn't get the contracts, because we didn't need them. We had all the information that was relevant for the determination of the cost that we needed to do for this committee.

In my opinion, DND was as forthcoming and open as one could have expected in the provision of information for this report, and I see Chris and Carleigh. They're not doing something like that, so I think that's an accurate description.

[Matthew Green, NDP, Hamilton Centre, ON]

No, that's fair.

Just to play this out, if we were to receive your report, not take action, accept their estimates, we go ahead with it, and four years down the line there's an “oops, I guess we were wrong”, Canadians are on the hook for the $20-billion overrun. Where's the accountability?

[Yves Giroux]

Accountability rests with those who ultimately make the decisions.

[Matthew Green, NDP, Hamilton Centre, ON]

That's a great answer. I'll accept that.

You noted that your estimates account for the differences and...an approximate 55% unit labour cost premium. How did your office calculate the anticipated labour productivity at the Irving shipyard?

[Yves Giroux]

It's not based on any wrongdoing or anything against Canadian shipyards. It's based on the fact that Canadian shipyards don't have the same experience in building military vessels as, for example, the U.S., where it's almost a constant production line, where it churns out military vessels on—

[Matthew Green, NDP, Hamilton Centre, ON]

What would be our comparative scale in terms of production, because again, we're hearing about capabilities. It's clear to me that even with this $80-billion investment, when we're up against countries that are spending in the trillions of dollars, this is a drop in the bucket globally.

In terms of it being a sovereign threat, does our sovereignty rest on the procurement of these vessels?

[Yves Giroux]

It's not for me to answer that question. Personally, that's an interesting question, but I'll let better, brighter minds than mine answer that question, especially people who are more versed in military doctrine.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

We will go to Mr. McCauley, for five minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks, everyone, for joining us.

Mr. Giroux, you mentioned that you're not a specialist in government procurement. I would put forth that the government is not a specialist in government procurement either.

I'm curious. How much are we at for sunk costs right now?

[Yves Giroux]

That's an interesting question. I'm going through my notes here. We have a lot of information from DND, but because some of it is commercially sensitive, there are some types of information and data that we cannot release publicly. The ballpark on our sunk costs so far is unfortunately part of that commercially sensitive information provided to us by DND.

[Kelly McCauley, Conservative, Edmonton West, AB]

How much are the cost overruns, or the added costs due to delays, and how much to added costs, such as weight or other changes made by DND?

[Yves Giroux]

In general, if a two-year delay had pushed back all production, we'd expect the number to be between $4.4 billion and $4.8 billion in terms of additional costs, but based on the most recent figures we have from DND—

[Kelly McCauley, Conservative, Edmonton West, AB]

But delays to date, not additional delays, because I recall sitting in committee a couple of years ago, hearing we were going to start cutting steel in 2023. The minister, at the time, even stated we'd have ship in the water in 2025, which is obviously not going to happen.

How much of this cost is from these continued delays from day one?

[Yves Giroux]

Do you have that information, Carleigh?