Evidence of meeting #37 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 ships.
A recording is available from Parliament.
Conservative
Michael Barrett Conservative Leeds—Grenville—Thousand Islands and Rideau Lakes, ON
Is that something that's been requested?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
My understanding is that it's a requirement from Treasury Board. Treasury Board policy states that life-cycle costs have to be considered when considering the acquisition of a major procurement. To my knowledge, they've never been released. They may have been calculated but never released.
Conservative
Michael Barrett Conservative Leeds—Grenville—Thousand Islands and Rideau Lakes, ON
Okay.
What is the new added cost per year for delay based on today's inflation? If I understand correctly, it was previously $2 billion.
Analyst, Office of the Parliamentary Budget Officer
That's correct. In the previous report, it was an estimated $2.1 billion. With some adjustments for inflation included, it's now $2.5 billion, as was quoted earlier.
Conservative
Michael Barrett Conservative Leeds—Grenville—Thousand Islands and Rideau Lakes, ON
Okay.
I think that actually exhausts my questions, Mr. Chair. Thank you.
Conservative
The Chair Conservative Kelly McCauley
Thanks, Mr. Barrett.
Mr. Jowhari, you have five minutes, please.
October 31st, 2022 / 11:45 a.m.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Thank you, Chair.
Thank you to our witnesses for doing the work that you do and for how quickly you make yourselves available to this committee.
Mr. Giroux, I believe I'm the last person asking questions today. As so many numbers have been thrown out, I'm going to quickly go through them. In 2008 we heard $26 billion. In 2013 we heard something around $90 billion. In 2020-21 we heard from DND roughly anywhere between $56 billion and $60 billion. Now we've come in and put a number of $306 billion.
As a Canadian, especially during these times.... People are asking questions. Where are these numbers coming from? Are they compatible? Did the $26 billion grow to $90 billion, drop to $56 billion, and then grow to now $306 billion? I mean, we throw billions of dollars here and there as if they're just numbers. Can you help us put into perspective what these numbers actually mean?
As a follow-up to that, you broke down the costs, or at least that's the first time I've seen the costs broken down, on development, acquisition, operation and disposal. Perhaps you could draw a parallel between those numbers and where they fit into this life cycle so that at least Canadians could have an understanding of where these numbers are coming from and how it relates to the life cycle you've put together.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I think that's an interesting question.
Our role is to help you—parliamentarians—and Canadians make sense of all these numbers by providing you with independent, non-partisan cost estimates of proposals that are before you, and that's what we did.
There are a number of numbers that have been used or quoted publicly over time, as you mentioned. There was the first initial estimate by DND. Then there was an Auditor General report where the Auditor General at the time looked at the life-cycle costs. Then we published our own cost estimate of just the development and acquisition, and last week we included not only the development and acquisition of these ships but also their operations, their maintenance and, finally, their disposal when they are no longer suitable for use by the navy.
That's why it can be a bit confusing. That's also why the report we released last week breaks down each of the four phases. The development phase is when DND works on the design and has project management to determine what would be the best ships to meet its needs. Acquisition is an estimate of the cost of building and purchasing the ships. Operations and maintenance is keeping the ships at sea with the required personnel. Disposal is tearing down the ships and safely disposing of the resulting materials.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Thank you.
Is it fair to say that the latest estimate we have from DND—which is roughly around $60 billion and dated back two years—is equivalent to the development as well as the acquisition, which in your report is about $84 billion? We see almost a convergence of the DND and the PBO as they relate to the development and acquisition, although there's still a gap of $20 billion.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, you're right that the $60 billion that you quoted from DND is equivalent to our $84.5 billion, but I would not qualify that as convergence. There's still a significant gap.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
There's still a big gap. I want to acknowledge that. Thank you.
In your response to one of my colleagues on the committee, you mentioned that we could consider “off the shelf”. Just for clarification, these are off-the-shelf designs you're talking about, because I don't think any country has 54 ships ready and we're just going to.... Okay.
When it comes to off-the-shelf design, can you quickly tell us—and if we run out of time, can you make a submission on—what the impact of that would be on the acquisition, which I believe would be the building? I don't think, then, the operation and the disposal will much change. Really, if there is any difference that comes in, it is going to come on the acquisition side.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes. We can probably provide the committee with that type of information in writing, although operations and maintenance would be highly dependent on the size of the ships and also their use. Are they at sea for the majority of the year or for a very small minority of the time? Operations and maintenance depend, to a certain extent, on the design chosen but also on the actual use of the ships.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Thank you, Mr. Chair.
I know you gave me another 10 seconds. I appreciate that.
Conservative
The Chair Conservative Kelly McCauley
I gave you an extra 30 seconds.
We have a couple of extra minutes before we excuse our witnesses. With the committee's indulgence, I will use the chair's prerogative and ask a couple of questions, if you do not mind.
First of all, thanks for appearing today.
I'm curious. With regard to the lightship weight, which was provided in 2021, when was the last time DND updated the LSW? Was it in 2021, or are you working off a previous estimate of your own?
Advisor-Analyst, Office of the Parliamentary Budget Officer
When we started the latest research for this report, we requested the information from DND regarding whether there had been any changes in terms of the design, the weight or anything like that. The answer was that, no, it is still using the same planning assumptions as we had in the previous report, so that is still the 7,800-tonne lightship weight.
Conservative
The Chair Conservative Kelly McCauley
Do you know what year DND last updated the LSW, then, that it is providing to you?
Advisor-Analyst, Office of the Parliamentary Budget Officer
It was certainly by 2020, although I suspect it's possible that DND has internal figures that are just not official yet.
Conservative
Advisor-Analyst, Office of the Parliamentary Budget Officer
Not the life-cycle costs, no. Just the development and acquisition phase costs.
Conservative
The Chair Conservative Kelly McCauley
I understand that, under the Treasury Board framework, it's required, but are you aware if DND has actually developed...?
Advisor-Analyst, Office of the Parliamentary Budget Officer
They certainly do have internal estimates of these.
Conservative
The Chair Conservative Kelly McCauley
Wonderful.
I'll ask my very last question, and then we'll get you out of here on time.
You're basing this cost, as you have in previous studies, on the Arleigh Burke class in the States. How much of the Constellation class—which was the newer, more up-to-date one—costing have you applied to this program?
Advisor-Analyst, Office of the Parliamentary Budget Officer
The Constellation class doesn't play into this estimate. We took a similar approach to what the Congressional Budget Office used to estimate the Constellation class, so we used the same base data they did, but that's the FREMM, not the Constellation class.
Conservative
The Chair Conservative Kelly McCauley
Wonderful.
Thank you very much, again. I appreciate everything you do. It's wonderful to see you. We'll see you back for the supplementary (B)s, hopefully, in a couple of weeks.
Committee, I understand the whips have agreed that we will not be sitting Thursday because of the fall economic statement. My understanding is that Paul will try to move the Thursday witnesses to our next ArriveCAN meeting, which is the 17th, if I'm correct.
Wonderful. There's nothing else. The meeting is adjourned. Thanks, everyone.