Public Accounts Committee on Dec. 7th, 2010

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Your role was not specific to the purchase of helicopters but was related to overall procurement. With regard to departmental planning, you did play a part previously in military procurement files?

[Robert Fonberg]

I'm sorry, I didn't understand the question, Mr. Chairman.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

It is a simple question. The Department of National Defence developed a capital procurement plan. You were at Treasury Board and had responsibilities dealing with military procurement, is that not so?

[Robert Fonberg]

No, I actually have no responsibilities to deal with military procurement. I was asked to lead a project to look at obstacles that could be overcome to reform the entire military procurement process.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Do the obstacles, on which you conducted analyses and made findings, include procurement elements and problems with regard to the posting of delays on MERX? Do they include such elements of market analysis? Earlier, the Public Works and Government Services officials indicated that market analysis had been carried out previously. Did you take part in all that?

[Robert Fonberg]

Do you mean market analysis done with respect to the Cyclone or the Chinook? Is that what you're talking about?

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

It is to complete the deputy minister's response.

[Robert Fonberg]

No, I did not deal with specific military procurement projects at that time. I was asked to lead some work across departments on the reform of the procurement process at a strategic level.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Very well. Now, since we have people here from Treasury Board, did someone replace you in those responsibilities?

[The Chair, Liberal, Joe Volpe]

Ms. Faille, your time has run out.

[Robert Fonberg]

No, actually, they didn't replace me in those responsibilities, Mr. Chair.

[The Chair, Liberal, Joe Volpe]

We could come back to that during a next round. I will now give the floor to government members.

I'm going to give the government members 10 minutes. I think Mr. Kramp and Mr. Shipley are going to share those 10 minutes, either equally, five and five, or however they choose.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you very much, Chair.

We certainly welcome all of our witnesses here today.

I have just a quick little commendation and then a question to the Auditor General.

I live right next to 8 Wing Trenton, and might I just say, on the C-17s and the Hercules 130Js, congratulations to National Defence and to Public Works. The process, speed, and timeliness were magnificent. I have talked to air crews. I've talked to ground handlers. I've talked to people coming in off relief missions. Truly, you should all be proud of what you've accomplished there, because it's a tremendous asset for our country and our region.

Madam Fraser, I have a very serious concern. There's something that bothers me in this report, your statement here, and maybe an implication thereof. In your report you said DND underestimated and understated the developmental nature of the Cyclone and the desired modifications to the Chinook. And then in fact you went on to say that DND “did not intend to procure an off-the-shelf Chinook but rather a modified one”.

Maybe I'm reading between the lines here, but to me it suggests you were implying that the departmental officials deliberately withheld information. Is that correct? If so, could you please explain to the committee how you reached that conclusion?

[Sheila Fraser]

Mr. Chair, I would just remind committee members that in the process of doing our audits and preparing our reports, we ask the departments to validate the facts. In this case, except for the disagreement on the procurement process, all departments have agreed with the facts as outlined in this report.

We have documents that indicate that senior officials were told this was an off-the-shelf purchase, using off-the-shelf technologies, and that it was low to medium risk. We have seen that the costs, in particular of the Chinook, were 70% more than what was originally estimated. There are significant delays, and the complexity, we believe, was much higher than what was originally estimated. As to why that was done, we don't get into motivations or rationale. People obviously thought it was a much easier process than it turned out to be.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

Mr. Fonberg or Mr. Ross, could you please respond to the Auditor General's comment in response to my question? I'm really interested in knowing, because to me this is the real crux here. There's some credibility on the line here, and I really want to get to the bottom of this.

[Robert Fonberg]

I'd just like to make a couple of introductory comments. I think it's very important to take on this issue of the 70% cost increase, because it's somehow worked its way into the psyche out there. I think, depending on how you want to look at it, you can either torque this up or there's actually a very good explanation for it. I'll ask Mr. Ross to do that.

On the issue of senior officials being told certain things and stuff like that, I guess what I would like to say is that, number one, there is nowhere in the report of the Auditor General--and I take it at face value--anything to suggest that anybody misled anybody, that anybody was misinformed, that anybody lied, that anybody acted in anything other than very good faith. So I said in my opening statement that people in the Department of National Defence, the Canadian Forces, and Public Works operate with absolutely the highest of integrity and the best of intentions.

We have accepted all the recommendations of the Auditor General, which are fundamentally about improving how we do this business. I think we should be very careful about confusing methodological and empirical data challenges for the intention of misleading. I'd just like to be clear on that.

I will turn it over to Mr. Ross to talk about the 70% number.

Thank you.

[The Chair, Liberal, Joe Volpe]

Mr. Ross.

[Dan Ross]

Thank you, Mr. Chairman and Mr. Fonberg.

When we at the Department of National Defence began working on the Chinook program, as is normal in the process we went out to industry with a price and availability. When that price and availability information comes in, it is normally low. We're used to that. Companies don't tell you the maximum cost they would ever charge you for something. They tell you the basic minimal cost. They don't offer comments like, “If you want to change this or change that”, or about the in-service support costs of the product.

The department takes that information in its option analysis phase, adds contingency, and thinks about self-defence equipment you would have to add to it and all of the factors that constitute an indicative cost we would take to Treasury Board ministers.

When we went to cabinet and Treasury Board in the summer and fall of 2006, we told Treasury Board ministers our first official number for the Chinook was $2.022 billion. When we went back, having finished our definition studies in detail for effective project approval in June 2009, it was $2.313 billion, about a 10% change. That change was due to the detail work we had to do with Boeing on exactly the same survivability upgrades we have done for C-17s and the C-130J Hercules, which are absolutely essential to take a platoon of infantry into really dangerous places and make sure that the risk to those soldiers is not unacceptable.

So we feel that in our options analysis work, from a very bare initial quote from Boeing to our first conversation with Treasury Board ministers, the price from there to the effective project approval did not change significantly. The project remains within that effective project approval number that Treasury Board ministers approved.

[The Chair, Liberal, Joe Volpe]

Thank you, Mr. Ross.

Mr. Shipley, you have about two and a half minutes left in your 10 minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Great. Thank you.

I wish these audits would take us back to what I think were some of the core problems when the Sea King replacement, some 25 years ago, was considered, and how that was rolled out. Quite honestly, it affects us even today in some of the procurements we've had to make in the interim in Afghanistan. Unfortunately, we don't do that, but we continue to pay for it.

In 2008 our government brought forward the Canada First defence strategy, which Mr. Fonberg mentioned in his comments. I think it's the outlay, and I'm wondering what he can tell me and the committee about the impact that has in moving forward in our strategy for our men and women in uniform.

By the way, I want to thank each of you in uniform for being here and for what you do for our great country.

Thank you very much.

[Robert Fonberg]

Thank you very much for the question, Mr. Chairman.

I'll be quite brief. The Canada First defence strategy in many ways, from a National Defence/Canadian Forces perspective, was a breakthrough approach to modernizing the Canadian Forces, their equipment, and infrastructure to grow the force and ensure they were ready to do the missions asked of them by the Government of Canada.

One of the major breakthroughs was the commitment to a 20-year funding line, which was adequate to deal with the growth of the Canadian Forces by establishing 70,000 regular force members and 30,000 reserve force members. But from a capital procurement perspective, the breakthrough in the Canada First defence strategy was a commitment to a 20-year funding line, including a 2% per year escalator, to make sure the funds were in place to cover--along with other things like accrual accounting--the actual cost of the then expected capital equipment required to modernize the CF.

[The Chair, Liberal, Joe Volpe]

You have one minute.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Madam Fraser, in your report on page 3 you talk about cost information, and that without more sufficient funds, National Defence may have to curtail planned training and operations.

I would ask Defence how they're going to deal with that or whether that is an issue.

[VAdm Bruce Donaldson, Vice Chief of the Defence Staff, Department of National Defence]

Mr. Chair, I don't anticipate that costs here will have an effect on operations or training. In fact it is booked in the investment plan and we expect we'll be able to do everything we planned.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much, Mr. Chairman.