National Defence Committee on May 5th, 2016

[RAdm Patrick Finn]

What that looks like and how that evolves.... The Polaris aircraft, for example, were retrofitted for that capability. Again, the Herc-Hs were modified. Fuel bladders are installed so they can be.... I won't say it's simple, but it's a different thing that could be done. Potentially, you even could modify the Herc-Js to pick up some of that.

So is it a bespoke fleet or is it stuff we're doing with existing aircraft? There is thinking around it, led by the air force and our chief of force development, but I would say it's secondary to what direction we take with fighters and where we go.

[Sven Spengemann, Liberal, Mississauga—Lakeshore, ON]

I see that I only have 30 seconds.

Is there greater attention to the Far North in terms of fuel distribution and refuelling capacity at this point?

[RAdm Patrick Finn]

For aircraft or for infrastructure?

[Sven Spengemann, Liberal, Mississauga—Lakeshore, ON]

For aircraft.

[RAdm Patrick Finn]

I don't know. I'm sorry.

[Sven Spengemann, Liberal, Mississauga—Lakeshore, ON]

Okay.

Mr. Chair, thank you. That's my time, I think.

[The Chair, Liberal, Stephen Fuhr]

Yes, it is. Thanks very much.

We're going to move on to five-minute questions.

Mr. Gerretsen, you have the floor.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

I want to pick up on the questions my colleague was posing regarding the infrastructure renewal.

You talked about Comox and the runway infrastructure investment that was being made there. He asked about what it would mean if we were to change the use of the runways. On the investment that you're planning for, how long is that good for? Is it expected to last 50 years?

[Jaime Pitfield]

In terms of upgrades to the runways and that kind of thing, that would be decades and decades. As needs change, the runways would be changed. The spending that I'm talking about is on a scale where it really is recapitalizing the current base, current capability, and current support to operations.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

My question is, how long is it meant to recapitalize for the current use?

[Jaime Pitfield]

We recapitalize on a 40-year cycle. We do $26-billion worth of assets every 40 years. That's the intention. In terms of Comox itself, it would be for a long time.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

If the intent changed 10 years from now, let's say, would the remaining 30 years of capitalization be lost? I realize that the intent would have to change fairly dramatically for that to occur, but I'm just trying to understand if we're wasting money in that regard.

[Jaime Pitfield]

I would say no, we're not all. Change on the scale that you're talking about would mean there's a new capability—

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

Right.

[Jaime Pitfield]

—and it would be quite dramatic. New capability requires new infrastructure and new support, so that would be an investment. As my colleague said, it's part of the overall equipment program.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

Okay. I'll turn it over to somebody who wants to finish my time, but just for clarification, if I understand you correctly, you're saying that this investment will not be lost if there's a change to the use?

[Jaime Pitfield]

I would say, generally speaking, yes, it would not be lost.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

Okay. Thank you.

If there's any time left, I'm ready to share it.

[The Chair, Liberal, Stephen Fuhr]

I have a quick one, unless somebody else wants to take it, with about two minutes left.

Mr. Rioux, you have the floor.

[Jean Rioux, Liberal, Saint-Jean, QC]

Ms. Campbell, Canada's economic growth is one of the goals of the defence procurement strategy, which was adopted in 2014.

Has this strategy had any positive effects? If so, could you give us some examples?

You also mentioned that free-trade agreements had limited policy implications.

Could you tell us about the impacts of that?

[Lisa Campbell]

Thank you very much for that excellent question.

In fact, we are starting to see results.

The goal of the strategy is to better plan where we try to invest. We now have a system that we use to evaluate bids from companies based on what they provide to Canada. It's very mathematic. We determine quotas during the overall bid evaluation, such as 20%, which means that the supplier must attract benefits to Canada amounting to a proportion of 20%, be it jobs or investment in economic research and development.

Our approach is increasingly strategic. This now applies to all military procurement of a certain amount. We are working with Innovation, Science and Economic Development Canada. We are preparing a map of Canada that would show where the capacity exists. Still, we want to be reasonable. We don't want to force investments where there is no capacity. We want to see investments were capacity already exists in order to feed them. Ultimately, we want to develop capacities that can be part of the global supply chain. That's the goal. The industry is very excited by this direction because it means that it really has a chance.

We have started to put a few nuances in place. We require that it not be exclusive. Therefore, a supplier must not commit itself to a single company. It can take part in several bids. It is very important for the Canadian industry. So small and medium enterprises that try to determine where they should align themselves have a number of options. For the Government of Canada, that means that there is more competition, more innovation, and that's what it wants to encourage.

I hope that answers your question.

[The Chair, Liberal, Stephen Fuhr]

I'm going to give the floor over to Mr. Bezan.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

I'll be splitting my time, Mr. Chair, with my colleague Mr. Paul-Hus.

I have a quick question for both Mr. Finn and Ms. Campbell on this whole issue of life-cycle costs, predictability, and your ability to project what the costs are going to be. We know that one-third of the cost, roughly, on most procurements is the capital acquisition cost. Two-thirds is maintenance operations and upgrades.

If you take the national shipbuilding procurement strategy, the Canadian surface combatant project, the Arctic offshore patrol ships, or new fighter jets, how well can you predict the costs of things that are very volatile, such as fuel and exchange rates? How do we put that into the budgetary processes so that it doesn't become a political football, regardless of which party is in power?

[RAdm Patrick Finn]

I think we can predict no better and no worse than anybody else, as you indicate.

I'll speak to ships. I spent a lot of time in that domain. As you indicated, the costs are about one-third acquisition and one-third personnel. If you look at the $100 billion we more or less forecast from a whole-life perspective for the next version of warships, that's what we're talking about. For some of them it would be part of that, meaning personnel costs. We also look at historical costs.

When we developed the through-life costs, the rough order of magnitude numbers, for the surface combatants, it was based on our experience of the Halifax class, the Iroquois class, and things of that nature.

In our budgetary process, of course, we have, on the capital side, the long-term accrual, the long-term budgeting profile. For the operations and maintenance personnel, as you'll appreciate, we have vote 1 done annually in the estimates. So at times we look at the money that's available, and we respond accordingly.

It is hard to predict, but we do have decades of experience of understanding how to do maintenance. There is almost a natural cycle of ebbs and flows. We will look when can we do more heavy maintenance, when we need to defer maintenance, when we can pick it up again, particularly in that long cycle of heavy maintenance.

Beyond the rough order of magnitude estimates, we can't comment on whole-life costs, but we do a lot of work. Our chief financial officer is heavily engaged in that. He has an economist who looks at future costs, including fuel. We have a departmental economic model. We have a cost factors manual that captures all of this on an annual basis. Every year, we capture personnel costs and the cost of operating and maintaining all of our large fleets, as well as the personnel costs, which allow us to see and project into the future. However, it is macro-economic at best.

As we come into more of a three-year profile we do very detailed costing, on maintenance, for example. For the funds that come to me under the national procurement budget—about $2.5 billion a year—we do very detailed work as well. We have a good three to five-year plan, and much rougher order of magnitude estimates downrange.

I think that would be the same for all of our allies. In fact, many of our allies shy away from any kind of through-life life costing. As I talked about, even in the acquisition piece they tend to look at the artifact and try to stay away from infrastructure and other things.

Frankly, I think in Canada we're more forthcoming about looking at the total budget, the total cost. Most of our allies in fact don't go there.

[Lisa Campbell]

If I may add a quick point, Mr. Chair—