Government Operations Committee on Feb. 4th, 2022

[The Chair (Mr. Robert Kitchen (Souris—Moose Mountain, CPC)), Conservative, Robert Gordon Kitchen]

I'd like to welcome you to meeting number three of the House of Commons Standing Committee on Government Operations and Estimates. Today we will be receiving a briefing from the Parliamentary Budget Officer.

Today's meeting is taking place in the hybrid format, pursuant to the House Order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application.

Regarding the speaking list, the committee clerk and I will do the best we can to maintain a consolidated order of speaking for all members who are participating virtually or in person.

I would like to take this opportunity to remind all participants to this meeting that taking screenshots or photos of your screen is not permitted.

Given the ongoing pandemic situation and in light of the recommendations from public health authorities, as well as the directive of the Board of Internal Economy of October 19, 2021, to remain healthy and safe, the following is recommended for all of those attending the meeting in person.

Anyone with symptoms should participate by Zoom and not attend the meeting in person. Everyone must maintain two-metre physical distancing, whether seated or standing. Everyone must wear a non-medical mask when circulating in the room. It is recommended in the strongest possible terms that members wear their masks at all times, including when seated. Non-medical masks—which provide better clarity than cloth masks—are available in the room. Everyone present must maintain proper hand hygiene by using the hand sanitizer at the room entrance.

Committee rooms are cleaned before and after each meeting. To maintain this, everyone is encouraged to clean their surfaces, such as the desk, chair and microphone, with the provided disinfectant wipes when vacating or taking a seat.

As the chair, I will be enforcing these measures for the duration of the meeting and I thank members in advance for their co-operation.

Before we start, I just wish to inform members of the committee that the departmental results reports for the period ending March 21, 2021, were tabled in the House earlier this week. In the past, OGGO has studied these reports while considering the supplementary estimates (C).

Does the committee wish to study the departmental results reports and supplementary estimates (C) 2021-22, and invite the ministers to appear? Is there agreement to do that?

I'm looking around the room and I see nods. On the screen, I see thumbs up and heads nodding.

Thank you. That is carried.

Members will notice that the Parliamentary Budget Officer is present in the committee room today for this meeting. However, he is also accompanied by two colleagues who are appearing virtually. We have Mr. Penney and Mr. Elmarzougui.

I now invite Mr. Giroux to make his opening statements.

Mr. Giroux.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Mr. Chair and members of the committee, thank you for the invitation to appear before you today.

As you are aware, under the Parliament of Canada Act, I am mandated to support Parliament by providing analysis of macroeconomic and fiscal policy, to raise the quality of parliamentary debate and promote greater budget transparency and accountability.

I am pleased to be here today to present the findings of our report entitled, “The Polar Icebreaker Project: A Fiscal Analysis”, a report initiated by my office as part of our ongoing effort to provide independent insight into our government’s National Shipbuilding Strategy.

With me today I have our two analysts, who authored this report: Christopher Penney and Eskandar Elmarzougui.

The Polar Icebreaker Project calls for the acquisition of two new vessels, with a single vessel being constructed at each of Vancouver Shipyards and Chantier Davie Canada Inc., the latter pending approval of the shipyard’s inclusion as a partner in the National Shipbuilding Strategy.

At present, the government has not released an updated cost estimate on this project. The last reported estimate dates to 2013, where a cost of $1.3 billion for only one ship was cited.

Our independent analysis projects a total cost of $7.25 billion for the acquisition of two polar icebreakers, which includes project management costs of $346 million, design costs of $820 million and acquisition costs of $6.1 billion.

In terms of the construction schedule, we estimate that construction should begin on the first vessel in the 2023-24 fiscal year, with the second beginning the following year. Deliveries of these vessels should then occur in 2029-30 and 2030-31 respectively.

We estimate that if the start of construction for these two vessels is delayed by one year, total project costs would increase by $235 million, while a two-year delay in the start of construction would increase costs by a total of $472 million.

My colleagues and I would be pleased to respond to any questions you may have regarding this report or other PBO work.

Thank you.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Giroux.

We'll go into questions. Our first round of six minutes will start with Mr. McCauley.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thank you, Mr. Chair.

Mr. Giroux, welcome back. It's always a pleasure to have you. You're sitting so far away that you might as well be at 99 Bank.

I attended your briefing on the icebreakers, so I'm well versed in that from your commentary.

I'm going to chat about your report, which was the economic and fiscal update briefing. In the briefing you talked about the very late publication of the public accounts, record spending and more deficit than any...since Confederation, combined.

We ended up having two years without a budget and then the latest publication of the public accounts since grunge music was popular back in 1993.

I'm just wondering what you think about the issue of transparency and trust in government, both from parliamentarians and the Canadian public, when this vital report is pushed so late.

[Yves Giroux]

I've commented a couple of times on the late publication of the public accounts. I indicated that this was highly unusual. It was not conducive to properly holding the government to account by parliamentarians, at a time when they were collectively asked to approve additional spending to fight the pandemic or to implement government priorities in an expedited manner.

At the same time, the government had not yet tabled the public accounts that indicated the amount of the deficit spending and tax revenues for the year that ended in March 2021. We found ourselves having to wait almost nine months to get these results. We know that the public accounts were ready. They were signed off by the Auditor General on September 9.

It would not have been appropriate, in my opinion, to table these public accounts during the electoral campaign, but given that they were ready in September, the fact that they were delayed until mid-December negatively affected the capacity of parliamentarians to scrutinize government spending.

[Kelly McCauley, Conservative, Edmonton West, AB]

They were signed off by the Auditor General and the other two that are required on September 9. My understanding is that the books were then reopened, for the first time ever after being audited, to add some more spending. I asked finance if the books had ever been reopened in history and their comment was that they were not aware that they had been.

Are you aware of any time since Confederation that a government has reopened the books—the audited and signed-off public accounts—to change the public accounts after the fact?

[Yves Giroux]

I'm not aware of any such instance. I wouldn't say it has never been done. I may look old, but I am not so old that I can remember everything since Confederation. In my recollection, that was the first time.

[Kelly McCauley, Conservative, Edmonton West, AB]

You were around for the second public accounts ever issued, were you not?

It's the same issue with the departmental results. These are the reports that are supposed to come out detailing what what results the government has achieved against its goals for all of its spending. Yet, I have internal documentation that was leaked to me showing that they were finished three or four months ago, and the government just sat on them before issuing them.

Do you see a benefit or a reason why they would be hiding this information from Canadians or parliamentarians?

[Yves Giroux]

I see mostly a downside to delaying the publication of departmental results reports. They were done presumably several months ago. Having been in the public service for decades, I know that officials work towards their tabling in the fall so there's no obvious reason why, to me, they would need more time this time around.

They were probably ready in the fall, and I see no significant gains in delaying the tabling of these reports, so I don't know why they would be tabled so late this time around, which is almost 10 months after the end of the fiscal year to which they relate, so it's unusually late.

[Kelly McCauley, Conservative, Edmonton West, AB]

I was talking to one of my Senate colleagues who used to be an auditor general at the provincial level, and she suggested we actually need legislation requiring the government to table such reports by a certain date, and I think you touched upon this in your report. Is this something you suggest or that you would support for transparency and openness?

[Yves Giroux]

It's certainly something that I would support when it comes to the public accounts. Right now there is a legislated timeline, these have to be tabled no later than December 31, and I'm suggesting that we advance that date to September 30. The public service has shown clearly that it can deliver within this timeline even during the pandemic. I think that it would not be unreasonable at all to request the same thing for the departmental results reports. The public service has demonstrated that it could deliver these in the fall, so it is something that you could certainly consider as legislators to have a legislated timeline for the DRRs that would require these to be tabled sooner than what we are seeing this year.

[Kelly McCauley, Conservative, Edmonton West, AB]

It would increase transparency and there would be no be drawbacks, there would be no negative effect of actually having the government publish this information in a legislated timely fashion for parliamentarians.

[Yves Giroux]

I personally see no downside, the public service can certainly deliver these products in a more timely manner. They've already done it in a year where it was very difficult, allegedly, and they've done that for years and years, so I see no reason why this would not be feasible.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. McCauley, and thank you, Mr. Giroux.

We'll now go to Mr. Kusmierczyk for six minutes.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you, Mr. Chair.

I want to begin by saying, after a two-year absence from this committee, how delighted I am to be back here in person to see all of you, and let the record show that you're all even more handsome in person than on the screen. I just wanted to put that on record.

Thank you, Mr. Giroux, for your report and for your testimony today.

In your cost estimate, what is the contingency estimate, and how much of your estimate cost is contingency?

[Yves Giroux]

Our estimate is the best estimate possible, and it does not include a contingency. We have, however, provided a range of likely scenarios. Our estimate of $7.25 billion is the most likely scenario that we estimate based on what we have looked at in terms of comparisons, with respect to the weight, and to comparable missions even though they are not perfect comparable ships, where we could have reliable data.

This is the best estimate we have.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you, Mr. Giroux.

I know on page 11 you mention that there's an inherent uncertainty with a project like this. Would you say that this was an exceptionally difficult analysis for your office to conduct?

[Yves Giroux]

It certainly is not one of the easiest estimates that we had to conduct, but neither is it the most difficult estimate that we came up with. We know that there are ships that are not the same mission and size, but we have comparators in other countries that have similar missions but different size, or ships that are of a broadly similar size, different mission, and by amalgamating these two factors, and looking at the Canadian recent experience with major ships procurement, we are fairly confident in our cost estimate.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

There will be two ships that will be built in two separate shipyards.

In your opinion, what are the advantages and disadvantages in terms of cost, for example, of including two shipyards on the project? What would be the advantages for the economy, as well?

[Yves Giroux]

In terms of costs, there are no advantages to having two shipyards build the ships. If it was the same shipyard building both ships, there would be economies of scale, or a learning curve that the shipyard would acquire, and would make the building of the second ship less expensive than if the contract was awarded to two different shipyards.

When it comes to economic benefits, having two different shipyards building these ships, it distributes more evenly the economic benefits of building these ships to two different regions, so there is a benefit inherent in that.

However, from a purely cost perspective, there are no significant advantages to doing that.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

I know your focus is on the cost analysis.

Is it fair to say that this also helps build capacity across the country, as well? Is that the advantage of having two ships built in two separate shipyards?

[Yves Giroux]

That's a very good point.

Building and maintaining domestic capacity is one of the big advantages of having these ships built domestically. However, the scope of my report is to estimate the cost of building these ships. It's not within the scope to determine the intangible benefits of having a domestic capacity to build these types of ships. The same goes for big Royal Canadian Navy procurements.

There are inherent national security benefits in having the capacity to build these ships domestically as opposed to building these ships abroad, but it's very difficult to quantify these in dollars.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

That's right.

Are there cost differences between the two shipyards, for example, due to labour availability in different regions, different levels of expertise, and perhaps materials?

I know we compared productivity and other costs with the U.S., but are there any inherent material differences between the two shipyards? Is that something that your analysis looked at?

[Yves Giroux]

In our analysis, we looked at a generic Canadian shipyard, assuming that if there were any differences in the two shipyards, they would not materially affect the total cost estimate. There may be cost differences that arise, but given the experience that we have as a nation as well as the cost estimates and the historical data that we have been able to gather for other types of procurements, we don't believe that these cost differences will materially affect the overall cost of the project.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

I have a last question for you. You used $51.62 per hour as the cost of labour in your calculation, if I read that correctly.

Can you explain that number? Does it also account for increased labour costs due to labour shortages or for unforseen labour shortages?