Evidence of meeting #17 for National Defence in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was chair.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Kevin Lindsey  Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence
Bruce Donaldson  Vice-Chief of the Defence Staff, Department of National Defence
Robert Fonberg  Deputy Minister, Department of National Defence
Dan Ross  Assistant Deputy Minister, Materiel, Department of National Defence

9:40 a.m.

Conservative

The Chair Conservative James Bezan

Mr. Lindsey.

9:40 a.m.

Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence

Kevin Lindsey

I would perhaps defer to the vice-admiral, if he wants to add more. I would say that these supplementary estimates do respond to our financial requirements for 2011-12.

I would say, Mr. Chair, that we diligently manage our appropriations. You will know that there remains one more set of supplementary estimates this year. Mindful of that, we took a minimal approach to supplementary estimates (A) and (B) in an effort to manage the appropriations that we've been allocated so far, knowing that to the extent we may need additional funds, there remains supplementary estimates (C) to give us what we need. That said, I expect there will be a very minimal request in supplementary estimates (C).

9:40 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

Thank you.

9:40 a.m.

Conservative

The Chair Conservative James Bezan

Thank you.

We're going to move on.

Mr. Valeriote.

9:40 a.m.

Liberal

Frank Valeriote Liberal Guelph, ON

Thank you, Mr. Chair.

Many of us at this table come from a business background. I have had a number of businesses, and I am the chair of a large quasi-public corporation. I always felt it was my responsibility to unlayer the onion on behalf of the stakeholders.

In this case, the stakeholder is the Canadian citizen. With that in mind, I hope you'll understand the spirit of this next question. It is about the answer that we were given by Mr. Fantino on the F-35. He said that when it came to comparing ourselves with the Norwegians and their purchase, it was like comparing apples and oranges. I'm sure that before he would say that, he would inform himself of the accuracy of his statement. I didn't have an opportunity to pursue that with him; there was no more time. But in informing himself, he would no doubt rely on you.

You might not be able to answer this question here. If not, perhaps you could undertake to give this committee the answers later, but was a comparison done--as would have happened in any corporation I chaired--with other purchases to see whether we were purchasing apples and not oranges? If so, will you forward that information to the committee so that we can learn why one country is paying so much less for so much more when it comes to the F-35s?

Would you have undertaken that comparison? If so, while you might not be able to tell us now, will you give us all the information and the comparisons so that we know it's apples and oranges instead of all apples or all oranges?

9:45 a.m.

Conservative

The Chair Conservative James Bezan

I'm going to come back to the issue of relevance and staying on supplementary estimates (B). Although the ministers addressed the F-35s, I'll leave it to the discretion of our witnesses whether or not they want to respond now or later.

9:45 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

I have a point of order, Mr. Chair.

Mr. Valeriote may not be aware that the committee's next study relates to the defence of North America. Capabilities to defend North America now and in the future will be very much before this committee, with full preparation by witnesses, and so forth. He needs to know that is the context in which we are operating and that today's meeting is about supplementary estimates (B), which deal with entirely different issues.

9:45 a.m.

Liberal

Frank Valeriote Liberal Guelph, ON

I won't be here, and I can't know whether this question will be asked later. So if they're prepared to answer now, I think it's up to them, as the chair has said.

9:45 a.m.

Conservative

The Chair Conservative James Bezan

I can't censor this. I can only say whether or not it's relevant. I also can assure Mr. Valeriote that his colleague, Mr. McKay, likes to talk about F-35s as well.

I'll turn it back to our witnesses.

9:45 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

All I would say—and Dan Ross might want to say a word about this too—is that we don't know exactly what the Norwegians purchased. There are base aircraft, and then a series of options and spares, and a lot of other things, for that aircraft. So I don't think it would be appropriate for us to be speculating on exactly what the Norwegians have purchased, as opposed to what we know that we have purchased. That would be information that's proprietary to the Norwegians. I think it was in that spirit that the minister talked about apples and oranges.

December 1st, 2011 / 9:45 a.m.

Dan Ross Assistant Deputy Minister, Materiel, Department of National Defence

All countries will pay the same unit flyaway price, the price of a complete aircraft. We'll all pay the same price in the year that the aircraft is produced. For example, in respect of the CTOL variant in, let's say, 2017, all of the countries that order the CTOL will pay the same price. All the other factors are unique to that country--the weapons they choose to put on that aircraft, how many they want, the infrastructure changes they want, and the training approach they want. We don't have any insight into how the Norwegians or the Dutch or the Italians will approach their internal costing. But we do know that the basic price of the aircraft is the same for all MOU partners.

Thank you.

9:45 a.m.

Liberal

Frank Valeriote Liberal Guelph, ON

We don't know whether they're apples and oranges, that's my point. We really don't know whether they're apples or oranges because we haven't done that comparison. Until this committee actually sees a comparison, we can't rely on the statement that they're apples and oranges.

DND is requesting $1.2 million from the Department of Fisheries and Oceans for the marine security operation centres. Additionally, DND will be spending $28 million for those centres in subsequent years. In other words, they have reprofiled the funds, thus allowing DND to reallocate this amount to other programs this fiscal year.

Why was it necessary to reprofile $28 million for the marine security operation centres? What is the total budget for those centres, and how much has been spent to date?

9:50 a.m.

Conservative

The Chair Conservative James Bezan

Thank you, Mr. Valeriote. Your time has expired, so we'll just have a quick response, please.

9:50 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

Okay.

Regarding the MSOCs, I'll let my colleague speak to that soon.

I just want to make sure that the record is clear. I think Dan Ross clarified that the basic flyaway price in the year the F-35s are purchased will be the same for everybody purchasing in that year. The probability that everybody else's internal domestic pricing and needs would be exactly the same is probably close to zero. The apples and oranges distinction that the minister raised is probably accurate. It would be highly unlikely that what we needed exactly in terms of weapons, infrastructure, and all of that kind of stuff would be exactly what the Norwegians were after.

I would leave it at that, and ask the CFO to speak to MSOCs.

9:50 a.m.

Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence

Kevin Lindsey

Thank you, Deputy.

Mr. Chair, with respect to the $28 million that is available to fund other initiatives because of the reprofiling, there was about a six-month delay in getting effective project approval to proceed with the construction of the centres. As a consequence, the spending has been pushed to the right. This $28 million simply reflects that delay. It has nothing to do with a backing off on the commitment. It's simply a delay in the approval process, which affected the project schedule.

9:50 a.m.

Conservative

The Chair Conservative James Bezan

Thank you.

Go ahead, Madam Gallant.

9:50 a.m.

Conservative

Cheryl Gallant Conservative Renfrew—Nipissing—Pembroke, ON

Thank you, Mr. Chairman. I'll be sharing my time with Mr. Chisu.

There was a story in the news recently that the Department of National Defence cannot spend all the money it's allocated in a year, yet we hear testimony saying that more money could be used for this or that. Earlier in the committee today, Minister Fantino explained that when something that has been procured and had money allocated for it is not actually delivered, that money has to go back to the central fund.

Is this news story referring to when that money goes back to the central fund? DND couldn't spend it all because it didn't have delivery of an item for which it had to pay.

9:50 a.m.

Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence

Kevin Lindsey

Mr. Chair, the 2010-11 fiscal year is a very good example that we can use to answer this question. The public accounts will show that, versus the amount of money that was appropriated by Parliament compared to what we spent, there was about $2.4 billion unspent. However, in any given fiscal year, the executive has the authority to reduce the spending ceiling that Parliament has given us.

In 2010-11, that authority was reduced by about $1 billion. That $1 billion, Mr. Chair, was associated with funding related to projects we expected to have to spend money on, but which we did not. That $1 billion in 2010-11 reduced our spending authority. That money will be made available to DND in the future.

A further $450 million or so of that $2.4 billion was carried forward pursuant to the regime that all departments have, a normal operating budget carry-forward regime. A further $50 million was unspent because of money that we had allocated to us for security at the Vancouver Olympics, which we did not need, leaving $950 million lapsing.

I can address the specifics of your point, and go back to a point I made earlier. DND actually manages two distinct capital budgets within its capital vote. One of those budgets allows us to reprofile money as necessary. That's the part of the budget from which the $1 billion I alluded to earlier came from—the $1 billion out of the $2.4 billion that lapsed because of delivery delays. That money has been moved to the right, and will be made available to Defence in future years when those liabilities arise.

The second capital budget does not give us those same flexibilities. So, included in that $950 million that lapsed is about $500 million in capital spending associated with specific projects under contract, where the money will not be moved to the right. We will have to fund those liabilities, when they arise, out of funds we didn't expected to have to use for that purpose.

An example of that phenomenon is the maritime helicopter project, where we had budgeted to spend approximately $250 million in 2010-11. The helicopters were not delivered. Consequently, we did not pay any money to Sikorsky. Central agencies turned down our request to reprofile that money to the future. As a consequence, that approximately $250 million lapsed, and is included in that $950 million that I just alluded to. That's the biggest single project representing that phenomenon. There's about another $250 million associated with other projects that fall into the same category.

9:55 a.m.

Conservative

Cheryl Gallant Conservative Renfrew—Nipissing—Pembroke, ON

Thank you.

I'll hand off to Mr. Chisu.

9:55 a.m.

Conservative

Corneliu Chisu Conservative Pickering—Scarborough East, ON

Thank you very much.

I have a very quick question. The supplementary estimates (B) list a transfer from Social Sciences and Humanities Research Council to support the indirect costs of federally funded research at the Royal Military College. There are also several other transfers to the RMC. Can you explain the various transfers to the Royal Military College? It is a reputable institution, so I'm happy to see these transfers, but can you explain them?

9:55 a.m.

Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence

Kevin Lindsey

Thank you for the question.

Mr. Chair, as granting councils the Social Sciences and Humanities Research Council and the Natural Sciences and Engineering Research Council provide funding for research deemed worthy in educational institutions across the country. RMC is an accredited university with a robust research capacity, and so some of the projects of the researchers at RMC were deemed to be worthy of funding from the council.

This supplementary estimate serves to transfer money from the granting council appropriation to DND, money that will ultimately be given to RMC to fund the research and, in a couple of cases, research chairs.

9:55 a.m.

Conservative

The Chair Conservative James Bezan

Thank you. The time has expired.

Mr. Brahmi, you have five minutes.

9:55 a.m.

NDP

Tarik Brahmi NDP Saint-Jean, QC

Thank you, Mr. Chairman.

I'd like to follow up on Mr. Kellway's question.

It is about the dangers of underestimating the purchasing costs for F-35s in particular. Imagine if we have quite significantly underestimated the F-35 costs. Could you tell me what budget mechanism will compensate for that discrepancy?

In other words, where do we get the supplementary amount to make up for underestimating the F-35 purchasing costs?

Is there no answer?

9:55 a.m.

Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence

Kevin Lindsey

Mr. Chair, I take the question as not pertaining specifically to the F-35 but to provisioning in general. I would emphasize—and my colleague, the ADM Materiel, may want to intervene—that DND has actually a fairly solid record in estimating costs. Yes, some projects do go over.

9:55 a.m.

NDP

Tarik Brahmi NDP Saint-Jean, QC

Let me stop you right there.

Imagine we have a specific project, be it the F-35s or not, that was not estimated correctly. What budget mechanism can we use to compensate for this discrepancy should we have to pay for additional purchasing costs?