Evidence of meeting #3 for Government Operations and Estimates in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A recording is available from Parliament.
NDP
Gord Johns NDP Courtenay—Alberni, BC
In terms of the costing, these shipyards are being built in markets where housing is skyrocketing, which is having a huge impact on inflation. Was that taken into account in the costing of this?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes. We did consider the higher inflation. It was built into our cost estimate. There is shipbuilding inflation that is specific to that sector. That is also dependent to a large extent on the overall inflation in the economy. We revised our inflation forecasts to take into consideration the most...well, not the most recent, because the report is already several weeks old, but we did take into consideration the higher inflation than the typical 2% target range of the Bank of Canada.
NDP
Gord Johns NDP Courtenay—Alberni, BC
Can you speak a bit about how we could improve productivity in Canada in our shipyards, and support our workers as well?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
If I knew the answer to that question, I would probably be much richer—which means I might not be here right now if I knew the answer.
One obvious way of increasing productivity would be to build more ships domestically so that the shipyards become more efficient. Of course, if you start by building one ship every now and then, the knowledge acquisition has to not start from scratch, but it has to be regained. The experienced workers might not be updating and upgrading their skills as often.
That's one easy answer on how to increase efficiency and productivity of shipyards. Beyond that, I'm not sufficiently well versed in naval construction to be able to provide more solutions than that.
NDP
February 4th, 2022 / 1:30 p.m.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you, Mr. Johns.
Thank you, Mr. Giroux.
We'll now start our second round.
We're going to five minutes with Mr. Paul-Hus.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Thank you, Mr. Chair.
Good morning, Mr. Giroux.
It's quite fascinating to see the progression of this file. About 10 years ago, a polar icebreaker contract, valued at $1.3 billion in 2013, was awarded to Seaspan.
Today you estimate that the two icebreakers announced by the government last fall will cost $7 billion, which is $3.5 billion each, but no official estimate has been provided by the government. Ten years later, two polar icebreakers are announced, built in two yards, but without a price tag attached, and your office has to do the study.
I'm going to read you a few lines from the 2019‑20 departmental results report from Public Services and Procurement Canada:
There is a risk that PSPC may not have sufficient procurement resources to achieve priorities, objectives and programs due to a shortage of procurement officers with the appropriate knowledge, which may require several years of experience specific to federal government procurement.
The report confirms that there is an in‑house expertise problem. Last year, when I asked you about this, you replied that this could explain part of the problem. Could the problem be much more fundamental? I'm trying to figure out how your office can come up with a $7‑billion estimate when the government can't say anything when it announces the construction of ships.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The pattern is that whenever we look at major procurement issues, for example, combat ships, supply ships, and now polar icebreakers, there is one constant: the costs are always higher when an independent office estimates them rather than the government. Even when it is the government that revises these estimates, they often go up.
I don't think the intentions are bad, but rather that we are dealing with a lack of expertise. Yet it is not expertise that is unique in the world. I like Mr. Penney and Mr. Elmarzougui and I find them very competent. However, I think that this expertise could be developed in government departments so that the government can come up with estimates that are credible and acceptable to all players.
There is certainly room for improvement in departmental estimation processes, in order to give parliamentarians accurate estimates wherever possible. Having said that, I understand that it is difficult to estimate the total cost of a project that is seven, eight or nine years away.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Thank you.
It is especially fascinating that a government can make an announcement about a project that they don't remotely know the cost of.
I have a question that is not about icebreakers, but relates to what you mentioned about surface warships. This week a report from the Australian government says that the type 26 ships that are in service are a disaster, as they are too slow for military operations and consume a lot of fuel.
Last year you published a study on the cost of different types of ships that could be purchased by Canada and the plan was to build a type 26 ship. Today, we see that the ships of this type that have been built and are in service are a disaster. What do we do with that?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I also read this headline with interest. It is our practice to update our reports and studies when important new data becomes available. This allows us to update our data and take into account new information.
The Australian experience will certainly be a factor in determining whether we update soon or wait another few months. It is part of the bureau's plans to update its estimates when significant information warrants such an update.
We've done it with the infrastructure programs, for example. We will certainly do it. It is only a matter of time. Will it be in a few months or in a few years? I can't say for sure.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
This is a topic that is quite urgent, given the costs that you have estimated, $77 billion for the fleet. I think this study should be done by our committee on a fairly urgent basis.
My time is up. Thank you.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you, Mr. Paul-Hus. You had 20 seconds left, so it's good to see both you and Mr. Johns letting us gain 40 seconds today.
We will now go to the next questioner.
Welcome to the committee, Ms. Thompson. Thank you very much for joining the committee, and we look forward to you being here.
You have five minutes.
Liberal
Joanne Thompson Liberal St. John's East, NL
Thank you.
Thank you, Monsieur Giroux, for being here today. I'm really quite interested in this as the MP from St. John's East, and of course, St. John's harbour is the home base for the Coast Guard. I see these vessels, the two that we're speaking about that are being replaced, all the time. I'm certainly well aware of their significance for Canada and our sovereignty, research and science and their presence in the Arctic. It's never been more important, so I'm quite eager to learn more and certainly to begin.
For the first 22 years, the Auditor General provided an unmodified opinion on the financial statements. Would you agree that this demonstrates the high quality of the Government of Canada's financial reporting?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's certainly not my role to contradict the Auditor General, so if the Auditor General has provided an unreserved opinion, I will take her word for that, not being an accountant myself.
Liberal
Joanne Thompson Liberal St. John's East, NL
Our government is committed to transparency and responsible financial management. Monthly financial results are reported in “The Fiscal Monitor”, and departments provide quarterly financial reporting. Do you agree that these monthly and quarterly reports provide value updates to parliamentarians to track spending in between the annual public accounts?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
“The Fiscal Monitor” is an important source of information for parliamentarians, for Canadians and for me, of course, as are the quarterly financial statements and the monthly statements that we get from the Receiver General.
However, the comment in my report of a couple of weeks ago related to the fact that there are adjustments very often made after the end of the year—accrual adjustments, accounting adjustments—and that makes it very difficult to solely rely on “The Fiscal Monitor” to have an accurate picture of the state of public finances. That's why I was recommending, and still am, that the public accounts be tabled sooner than they were in this fiscal year.
Liberal
Joanne Thompson Liberal St. John's East, NL
You've mentioned that the estimating costs for large polar icebreakers are particularly challenging because there aren't many with similar specifications. What did you use in your comparisons to come up with the estimates?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We used a combination of comparators. We used ships that were of a roughly similar size but not with the same mission. We also looked at ships with a similar mission but not of a similar size.
There could have been ships of broadly the same size and the same mission that we could have used, but these were Russian-made ships, so we didn't think there would be sufficiently good data to provide a reasonable estimate.
Therefore, we took ships of a similar size, different mission; and same mission, different size. We also looked at the historical costs for the Arctic offshore patrol ships and the joint support ships. Combining all these factors, we arrived at a cost estimate for the polar icebreakers. Chris and Eskandar would be happy to provide you more details if you are interested in having more details as to how we included each and every one of these cost comparators into our model.
Liberal
Joanne Thompson Liberal St. John's East, NL
That would be quite interesting, because she really is quite a unique vessel and, of course, the work is very specific.
How confident are you that the estimates are accurate?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We're as confident as possible, considering the fact that this is a program that does not have that many comparators. With the data that we were given, we are fairly confident in the cost estimate of $7.25 billion, recognizing that there are unknowns and that this is a long-term project with several factors that could influence the final cost. At this point in time, I am confident about this cost estimate.
Liberal
Joanne Thompson Liberal St. John's East, NL
What would you say made this an exceptionally difficult analysis in terms of the variables? Can you be a little bit more specific in terms of what the greatest point of uncertainty was for you in the estimate?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The biggest point of uncertainty is the fact that there are not that many ships with that capacity in the world for which we can get reliable cost estimates. That's the biggest unknown.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you.
Well done, you were five over.
We will now go to Ms. Vignola for two and a half minutes.