Public Accounts Committee on Dec. 7th, 2010

[Dan Ross]

Thank you, sir.

We begin estimates of the cost of ownership immediately--in this case with the air staff--in the options analysis right at the beginning. We work with our allies. We work with our experience in having operated helicopters. In this case we had operated the Chinook helicopter before we sold them to the Dutch.

In the case of personnel, there is no incremental cost because we are fixed at 70,000. They must be reallocated from other activities in the Canadian Forces.

We provide that advice to ministers, and we work with Treasury Board officials in detail on the Treasury Board submissions to inform ministers of the factual information, as best we have it at the time.

I have to qualify that in-service support estimation is very difficult. We all drive cars, but no one here can tell me what the price of gas is going to be next week. To predict what it's going to be 30 years from now--or the cost of aluminum, repairs, and repair and overhaul--is a very difficult business. In fact, you never know the cost of ownership until you've owned them for 30 years. You also don't know the rate of usage. Will you be going into a combat mission or not? It is a continuous process.

We don't get to a contractual-level number without a great deal of effort with our colleagues at Public Works and the actual supplier, once they have been selected competitively--ACAN, SOIQ, or whatever. In the case of the Chinook, it took us over a year of really hard negotiations to hammer out with Boeing what the cost per hour of flying the Chinook would be.

All that is to say it's difficult, imperfect, there are a lot of unknowns, and it's iterative.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you.

Mr. Fonberg, I believe you spoke about your detailed action plan and the process you've given to our committee. I wonder if you can share some of your thoughts and some of the points on the detailed action plan that address some of the Auditor General's recommendations.

[Robert Fonberg]

Thank you, Mr. Chairman.

I'd like to come back on the point I was going to speak to one minute ago.

We come to this table prepared to speak to the substance of these extremely serious matters. These are very serious projects. They're multi-year--10 years longer in the case of one and six years in the case of another to get them to where they are today. They're multi-billion-dollar projects.

There are formal rules in all of this for Treasury Board, Public Works, National Defence, and ultimately Parliament. We don't come to the table to say, “Not me. Not me. Not me.” It's us. We're here to answer the questions. We think they deserve serious dialogue. That's why we're here. That's the dialogue we're actually having.

On the action plan, I think the Auditor General's analysis and the facts that are in her report are extremely timely. The action plan speaks to lessons learned, whether it happens to be around the degree of modifications, full life-cycle costing, or in-service support. We have laid out an approach, which I think is a healthy approach, in each of those cases.

If one were to go back five years or longer, I think one would see that we are getting better and better at how we procure this complex equipment. I would also say it's only over the last five or six years that the funding line has emerged in such a way, and the commitment to modernize the kit of the Canadian Forces has become such an important factor in all of this.

The procurement run rate in our department has probably gone from about $1.5 billion a year, seven or eight years ago, to $5.5 billion today. It's an extremely complex business. We have answers to questions, but unfortunately they're not 30-second answers.

[The Chair, Liberal, Joe Volpe]

Thank you very much, Mr. Fonberg.

On behalf of the entire committee, I take your response. I want to let you know that it wasn't a 30-second response. Without being trite, it was very good. You've gone well over time, but I'm glad you gave the answer you did.

I have yet another question from Madame Faille.

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

I still have some questions. Actually, I would have a number of them.

I am thinking of PWGSC. A little earlier Mr. Guimont, you spoke to us about the first, second and third delay concerning the Cyclone maritime helicopters.

Will you be imposing penalties?

[François Guimont]

Before I answer, Mr. Chair, I would like to clarify something my colleague from National Defence said earlier.

Regarding the accountability of people who work on these files, we are not talking about a single person, but rather of a team of experts who get up in the morning, come to work and want to do a good job. That should be said, because those people who are listening hear what is said and might be offended by it.

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

We agree with you. That is not the issue, Mr. Guimont.

[François Guimont]

I simply wanted to make that comment, which I did. I will now answer your question.

We received a request from Sikorsky for an excusable delay, which we turned down. They sent us a second request and an explanation. We will consider it and apply penalties if need be.

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

Is the price of the helicopters in Canadian or U.S. dollars?

[François Guimont]

They're paid in Canadian dollars.

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

That is for both types of helicopters. Very well, that is excellent.

I thought they had been purchased in U.S. dollars.

[François Guimont]

I would like to make a correction. I apologize, I believe they were paid in Canadian dollars.

I have been told that the Sikorsky Cyclone maritime helicopters were paid in Canadian dollars. In the case of the Chinooks, the transaction was in U.S. dollars.

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

Did you assess the currency fluctuation risk?

[Dan Ross]

We carry contingency in our project overall approval levels to accommodate any risk of currency fluctuation. So if you see an overall figure of $2 billion, that includes the acquisition price, contingency currency fluctuation risk, project management costs, and everything.

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

So that includes everything.

Earlier, I believe someone referred to a written response from PWGSC, which stated that, in the past five years, there has been increased reliance on experts, i.e., former PWGSC employees with military procurement know-how. They act as procurement facilitators or RFP Riders. They help and support the department in the preparation of calls for tenders.

They also conduct fairness monitoring activities as part of various contracts. In the case of the helicopter procurement, could you tell us whether such consultants were hired, who they are, as well as their mandates and the work expected of them?

You can provide us those answers in writing.

[The Chair, Liberal, Joe Volpe]

Thank you, Ms. Faille.

Mr. Guimont, Mr. Ring et al., of course, that question calls for a written response. I would ask you to provide us with that response as soon as possible and send it to the chair so that it can be distributed to all other members.

Thank you.

You can continue for three minutes, Mr. Saxton, and then I'll go to Mr. D'Amours and Mr. Harris.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

My final question is for Madam Fraser, the Auditor General.

The Department of National Defence has acknowledged that the manner in which these two projects were managed deviated from certain policy requirements and project approval guidance, and has accepted all of your recommendations moving forward. Indeed, Mr. Fonberg provided the committee this morning with an update on the department's response to your recommendations.

The points raised in your report aside, there are three facts that should be noted.

First, the appropriate personnel from DND were involved in the management of these projects, ensuring effective oversight. Second, while certain costs were not developed until late in the definition phase of the project, all costs were fully disclosed before approval. Third, both projects are on track to be delivered within their original approved funding.

Madam Fraser, do you agree with those three statements?

[Sheila Fraser]

Chair, I don't think I want to get into a long debate. I'm not sure that I agree with those three statements. On the question of oversight, we reported in the report that there were committees that should have met, that should have reviewed these projects but didn't.

On the question of funding, we saw in the case of the Cyclone that there were costs for maintenance and in-service support of over $1 billion, for which the department has not been funded. I don't know how that's going to be resolved.

So I think time will tell whether the three statements--or at least certainly the funding one--will be respected. Who knows? We may go back and do a follow-up audit to find out how all this plays out.

As for meeting the deadlines, I think we see that additional delays have been incurred. So I think time will tell on that too.

[The Chair, Liberal, Joe Volpe]

Mr. Saxton.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

[The Chair, Liberal, Joe Volpe]

That's it? Thank you.

Mr. D'Amours

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

Thank you, Mr. Chairman.

I am thinking of comments that were made earlier, in particular by Mr. Guimont and Mr. Fonberg. We know that rules must be followed, but the Auditor General clearly stated that was not the case with many of them. That is an established fact. You cannot start to rewrite things today for the future. Some things were applicable in the past and should have been applied.

I have gathered that there are teams of experts. I do hope that is what they are. However, this was not on-the-job training. At one point, someone will have to face the consequences.

Billions of dollars are being spent left and right. The existing rules are not being followed. There are delays. Things are said, but in the end, they do not appear accurate. We listen to all that and think that everything is okay.

It is as if there were no parliamentarians here anymore, and you could continue to disregard the rules. You could say that this is equipment that is part of the system, which exists, but it is not in place because modifications are required. This is what we are up against today.

I do hope that we have experts in place and that the people who are hired can do the work. That said, this is not on-the-job training whereby people would be put to work and, if they made mistakes, they will be corrected and allowed to continue.

Billion-dollar projects might well be complex, but that is exactly what one would expect. Such projects are not about buying pencils, but are rather about major acquisitions representing substantial costs. We expect people will follow the rules. That is a basic principle. We expect that what was said in cabinet was a matter of cabinet debate. There should be no surprises down the road.

We do not want to have the Auditor General come with information stating that things were not as they were intended to be, that something else was said in the past and today, we find ourselves, our work here, not being taken seriously.

People should not be led to believe that they are being personally or directly attacked. However, there must also be consequences. When people act in such a way and do not follow the rules, there must be consequences.

I would like to know what the consequences will be for not having followed the rules.

[Robert Fonberg]

The consequence, briefly, Mr. Chairman, is that we'll get better at doing it. I think I have--

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

Mr. Fonberg, as I mentioned, it all seems like on-the-job training.

[The Chair, Liberal, Joe Volpe]

Monsieur Fonberg.