Public Accounts Committee on April 26th, 2012

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

Thank you to our witnesses for being here.

I just wanted to follow up a little bit on Mr. Alexander's question to be extra precise when we talk about acquisition and sustainment.

There is only one finite number in this whole discussion, and that's the $9 billion acquisition. Is that correct?

[Michael Ferguson]

In terms of that being a $9 billion budget amount for the acquisition, I'm not really sure what the term “finite” means, but my understanding is that there has been $9 billion set aside, approved for the acquisition of replacement fighter jets.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

That is the only number that's actually known. Everything else is an estimate, correct?

[Michael Ferguson]

The $9 billion as a number for the budget is a known number, but the amount of cost to actually acquire 65 jets is still an estimate.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

The acquisition, though, the $9-billion budget, is jets and spares and simulators and initial training and so on. I mean, that's a frozen number. We've frozen that number. That number is known, correct?

[Michael Ferguson]

Thank you.

Again, we identified that for acquisition, the government approved $9 billion for acquisition.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you.

I want to talk about sustainment now, and the fact that it is estimates. We're going to fly the CF-18 for 40 years, plus or minus. Do we know what that's going to cost, precisely, until we get to the end of that?

[Michael Ferguson]

Certainly costs going into the future need to be estimates and have to be estimates.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you.

Can we estimate today with any kind of accuracy what the cost of fuel is going to be in 2030, 2040, 2050?

[Michael Ferguson]

Certainly any costs looking into the future have to be estimates based on the best information known today.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

The same thing goes with salaries. The same thing goes with missions. When we bought the CF-18, we bought it to do some missions in general terms—NORAD, NATO, and so on. We didn't know when we bought the airplane that we'd be operating them in the liberation of Kuwait or that we'd be doing a bombing campaign in Kosovo, or helping out in Libya. These are the kinds of things we can't predict. Those change estimates into reality as the program unfolds.

My point is that all of these preliminary estimates will in fact change for a wide variety of reasons. Is that fair to say?

[Michael Ferguson]

Certainly, again, looking at costs into the future is an estimate process. That's why it's important not only to provide estimates but to provide things like ranges and sensitivity analysis around those estimates and to prepare risk mitigation strategies, in case those types of estimates are not accurate.

So it's an estimate process, but whenever you're using an estimate process you also have to use other tools, such as sensitivity around the amounts, and...such as risk mitigation strategies.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I couldn't agree more. When we throw out there that somehow $25 billion is somehow a hard, solid number, I suggest that is not being accurate with the Canadian public.

[Michael Ferguson]

The $25 billion number that we used was the amount of the two budget amounts that were approved, $9 billion and $16 billion. So we used that on the basis that those were amounts that were actually approved, rather than using a number of our own estimate.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Okay. I would suggest to you, Mr. Ferguson, that as we're buying the airplanes year by year, we're not buying them like we bought the CF-18, where we bought 130 airplanes in one contract, one time, one price. We and the other eight partners are going to be buying the airplanes year by year. One year we might buy ten, somebody else might buy six, and so on. That total number, whatever it is, then gets negotiated with Lockheed Martin or whoever the contractor is. Then the next year we do another one.

That's when those budgets specific to that year actually get approved to buy the airplane. The budgets aren't approved today. Those are estimates going forward. The budgets will be approved when the time comes. Is that not accurate?

[Michael Ferguson]

Again, in terms of the Department of National Defence having approved budget numbers, they had the numbers of $9 billion and $16 billion. Obviously those estimates, those numbers, have to go through the appropriations process on an annual basis to get final approval.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

So no signatures have been given to actually expend those dollars, and won't happen until that year.

[Michael Ferguson]

And that's precisely why it's important for the government to explain, if they are going to start acquiring these jets, what the potential impact is going to be on budgets into the future, because that will have very much an impact on what has to be approved by Parliament in those future years.

So the very fact that each year Parliament has to vote on the amount that's going to be spent, either for acquisition or for operating costs, is why it is critical that full life cycle costing and information be provided, so that people understand that future impact.

[The Chair, NDP, David Christopherson]

Mr. Hawn, your time has expired.

Moving on, Monsieur Ravignat, you have the floor, sir.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you, Mr. Chair.

I agree. Mr. Reed, the list of names you used for chapter 6 in 2010 would be extremely helpful since the same names come up in this situation. Could you please provide us with that list?

[John Reed]

I'm sorry, I missed part of the question.

[Mathieu Ravignat, NDP, Pontiac, QC]

I'm referring to the list of people you consulted to produce chapter 6 in 2010. Our real concern here is whether public funds were properly managed or not. As we see it, that is the million-dollar question. It is clear that the government lost total control of acquisitions valued at several million dollars. This goes beyond fighter jets; it involves the recent tank procurement as well.

Mr. Ferguson, in your report, you said that the Department of National Defence likely underestimated the full life-cycle costs of the F-35s. We now know that the minister was aware of the Treasury Board rules. My question is simple: why did they underestimate the costs?

[Michael Ferguson]

Thank you.

Again, we can't ascribe any motive. What we did was we identified that life cycle costing was the best practice. Life cycle costing should have been used. There were certain costs that were not included, including the full life cycle, the full 36 years rather than 20 years, and then some specific cost items that should have been included in those cost estimates.

[Mathieu Ravignat, NDP, Pontiac, QC]

Very well. Thank you.

Did your audit take into account the correspondence between the U.S. government—the Pentagon—and the Department of National Defence?

[Michael Ferguson]

Thank you.

I'll ask Mr. Reed to answer that question.