National Defence Committee on Oct. 7th, 2010

[Geoff Regan, Liberal, Halifax West, NS]

You said in your presentation that it's also shocking that we are considering buying an aircraft without knowing its full life cycle costs. These costs can be two to three times the acquisition costs.

[Alan Williams]

Absolutely.

[Geoff Regan, Liberal, Halifax West, NS]

Based on your experience, what's the standard? Is it two to three, or is it more?

[Alan Williams]

I know when we bought our F-18s.... I think I have the figure here or something like that. When we bought our recent Chinooks, it was $1.2 billion to buy them, and $2.2 billion for support for 20 years. Given that we'll keep them for 30 years, it's $3.3 billion, so that's two and a half times or something like that. But it can be that much.

And typically--unbeknownst to most people--the newer equipment costs more than the old equipment because the new equipment is all technology-driven. It's all software. All you're buying, really, is a big piece of complicated software, which always gets updated and requires updating. So it's more expensive to replace new stuff than to maintain old stuff.

[Geoff Regan, Liberal, Halifax West, NS]

So is it fair to assume, then, that if the initial cost of these aircraft is $9 billion, we could be looking at life cycle costs of $27 billion?

[Alan Williams]

It's possible. However, I think the $9 billion is more than just the initial acquisition. I haven't seen the breakdown of the figures, which is also something we should see. But if the initial figure was $5 billion for them, then it could be $10 billion to $15 billion, I would say, over the long term to support these.

Now, having said that, this program is really designed to lower the long-term costs. There is a lot of neat, really 21st century ergonomics and this kind of thing, and autonomic logistics, so it could be lower than that, and I hope it would be. But I am saying you don't know, and that's a scary thing, to buy something whose long-term costs you don't know.

[Geoff Regan, Liberal, Halifax West, NS]

You said earlier that it's not illegal for the government to decide to sole-source a contract, as they have done in this case. In your experience, what would your reaction be if they were giving a sole-source contract to someone who is about to become chief of staff, or through the person to the Prime Minister of Canada?

[Alan Williams]

I'm not getting into those kinds of questions. I will say that I do not lobby, never have lobbied, and never will lobby, because I don't want to get into those kinds of conundrums.

[The Chair, Conservative, Maxime Bernier]

Thank you, Mr. Regan.

Mr. Hawn, the floor is yours.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

You say you are shocked that we would consider buying an aircraft without knowing the full life cycle cost. That's what you said.

[Alan Williams]

Yes.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Do we know what the CF-18 will have cost to operate in its life cycle in 2020 when we cease flying that airplane after 38 years? Do we know what that number is?

[Alan Williams]

We have some idea, and I'm sure if you went to the department they would tell you.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

We have some idea. We have estimates.

[Alan Williams]

That's correct.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

We don't know what it costs until we're finished.

[Alan Williams]

No, but pretty well.

And I will take this opportunity to point out--and you may want to get a copy of this--that the long-term costs of any asset are often, as I've said, higher than the initial acquisition cost. And we put out while I was there long-term equipment support cost projections, looking 10 to 15 years ahead as best we could, in order to give this committee, as well as industry, an idea.

So my point is that we're doing things smarter today. When we bought the recent helicopters we made sure that the contract was for the initial acquisition as well as the long-term support. When we bought the search and rescue helicopters we weren't as smart and we didn't.

Now we have a very good idea, if we're smart and we purchase things smartly, to know what the long-term costs are.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Those are estimates, would you agree? Because you don't know. I don't know what the F-18s are going to cost because we're not there yet.

[Alan Williams]

No, but I am saying that when we bought the recent helicopters, our Maritime helicopters, we knew exactly what it was going to be because that was part of the contract. We went out to industry and said that we wanted to know what the initial acquisition costs and long-term costs are, in black and white, per contract, so we can budget for that appropriately. And we did know.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

For a period of time, without knowing what might happen down the road.

[Alan Williams]

For the next 15 years, for sure. But at least we knew for 15 years what the costs were.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Again, that's an estimate, because you don't know what's going to--

[Alan Williams]

No, it wasn't an estimate. It's a contract. It wasn't an estimate. This was what one party was committed to pay the other as per the contract. It was not an estimate.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

And if the airplane ran into some—I won't say catastrophic—serious--

[Alan Williams]

Then the terms and conditions would have to apply to it.

There's a big difference between saying to me that there's an estimate out there in Fuzzyville and a contract that stipulates a number.