Public Accounts Committee on May 1st, 2012

[François Guimont]

We have had a number of interactions with the AG's office. That started pretty much at a level in the interaction where you're getting closer to the ultimate draft. That's the first point.

On the second point, our position with respect to recommendation 2.81 was one where we felt that we had demonstrated “some due diligence”, as stated by the AG last week. Recommendation 2.81 says we “did not demonstrate due diligence”.

“Did not demonstrate due diligence” is an absolute; demonstrated “some due diligence” is what we did. That is why we had a discordance.

[The Chair, NDP, David Christopherson]

Thank you.

I'm sorry. The time has expired.

We're over to Mr. Shipley now, who has the floor.

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

Thank you, Mr. Chair.

I want to follow up on that if I can, Mr. Guimont. As you know, you disagreed with paragraph 2.82 of the report from the AG, but since then, the ministers have set up a seven-point plan. We've talked a little bit about that. I believe Mr. Deschamps did earlier. It would include the secretariat.

Do you still disagree, or was the disagreement based on an understanding of the wording?

[François Guimont]

Thank you for the question. I appreciate it.

I feel very comfortable with the statement made by the OAG; that is, some due diligence was exercised, but it was not sufficient. I accept that. I accept it in the sense that on a going forward basis, as explained by Madame d'Auray, this has not yet reached the preliminary program approval stage. Further due diligence is needed, and the seven-point action plan frames how that due diligence will take place, clearly, and on a go-forward basis, absolutely.

We are in a department where every procurement...despite the fact that it comes across as a competition look-alike from a distance, it’s not.

Another point I would agree with the OAG on is that this is a unique process. Mr. Ring, I don't remember seeing this in the time that I've been in Public Works. It was 15 years of development, moving into another phase....

Looking back, we should probably have taken a different look at how to undertake that ongoing due diligence, but the seven-point action plan does that on a go-forward basis.

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

The seven-point action plan was presented, and we have that in its points, but my understanding is that the development, a strategy of how it would come forward and be implemented, is the part still under way. Is that correct?

[François Guimont]

Yes, Mr. Chairman. The plan is very clear, the mandate is clear, and we are now framing this into our terms of reference that all deputies will sign onto. It sanctions the tier structure I described, the roles and responsibilities.

Maybe Mr. Ring wants to add a few words on how the secretariat will function.

[Tom Ring]

Thank you, Mr. Chair.

I will link back to an earlier question about the parallels with shipbuilding. That was an experience where several attributes were identified that we felt allowed us to move forward and gave us, we think, a tremendous result, in terms of public confidence in that result.

In the first instance, it was an openness and transparency in our engagement with all those who would be involved. In the second case, it was an oversight and due diligence through a governance structure that Monsieur Guimont has fully explained, so I won't go through that again. Finally, the third attribute was the use of third parties to independently review and validate decision points and considerations. Those three attributes, we felt, were instrumental in the success of shipbuilding. As Monsieur Guimont indicated, we believe the seven-point action plan will allow us to implement those attributes and arrive at a similar result.

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

Thank you so much.

As I mentioned, we've all had access to the background of the seven points.

I would like to go to Mr. Kennedy from Industry Canada.

In your presentation you talked about the value that our mostly aerospace companies within Canada have been able to benefit from in the development stage. It's clear that no money has been spent on the acquisition of an airplane, but there are different stages in which it is developed. Canadian companies have been able to attribute a great amount of success to that, quite honestly.

Can you tell us about what those benefits are, so that maybe the general public can understand the difference between the acquisition of a plane and the development stages from which Industry Canada and our companies in Canada have been able to benefit?

[Simon Kennedy]

Thanks, Mr. Chair.

There are three principal benefits, but mainly it's getting in on the ground floor of the development of a brand-new piece of technology. As has been discussed, the F–35 joint strike fighter project is really meant to be at the cutting edge of aircraft technology. The Canadian companies participating in the development of that are in, from the very early days, on the development of the technology, which gives them a couple of advantages.

One advantage in the longer term, when the product actually goes into production, is to participate in the building of those pieces. The second advantage is, having developed this technology, that they can then take it and apply it elsewhere in their business. We do have real examples in Canada of companies that have participated in the development of the JSF being able to take that technology and apply it in other businesses, such as in the civil aircraft business.

[The Chair, NDP, David Christopherson]

Thank you.

Your time has now expired, Mr. Shipley.

Over to our second vice-chair, Mr. Byrne. You now have the floor.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you very much, Mr. Chair.

On the conclusions reached by the Auditor General and the grey-area disagreements, would the Deputy Minister of Public Works and the Deputy Minister of National Defence table to the committee the specific letters that were forwarded to the Auditor General regarding the conclusions reached by the Auditor General?

[Robert Fonberg]

I have no problem with that.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you, Mr. Chair.

We have limited time. We have a number of witnesses before us. I appreciate that Conservative Mr. Daryl Kramp said to us just a little while ago:

The last thing we need is to have a whole group of witnesses coming in here, eight or nine witnesses at one point, and not be able to dig down and drill down when we should and when we need to.

There are eight witnesses before us. The final witness list was just presented to the committee members at 7:22 this morning. So I wish we had more time. I would like to have them all back again.

Mr. Fonberg, you told us that the way you presented information in 2008 and 2009 was the way you did life-cycle cost descriptions for 20 years. On the costs that were included in the Auditor General's report and the costs that were included in the Parliamentary Budget Officer's report, the discrepancy was created because they included costs that you normally hadn't included for 20 years. So nobody should be surprised that if you've done something for 20 years, that process would be repeated in 2008 and 2009. Is that correct?

[Robert Fonberg]

I don't mean to be difficult, but I'm not sure about the 2008 and 2009 reference. I spoke to the issue of the last four and then the consistency of the fifth major air asset acquisition since 2004. In each case we have spoken publicly to the issue of acquisition costs and sustainment costs, and we have said that operating costs are affordable and prioritized within our budget that goes before Parliament every year. The total costs for all of our fleets to operate on air, land, and sea are close to $4.8 billion a year, approved by Parliament.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

I'm trying to give you a way out here, Mr. Fonberg. In 2010—and I'll just pick up on my colleague's point—something changed with the Auditor General's report on the acquisition of the Chinook helicopters. You agreed that the past practices on full life-cycle reporting were not adequate. On what I was trying to help you out with here, if you made a life-cycle acquisition cost in 2008 and 2009, reported it, and got cabinet to use those figures, nobody should be blaming the Department of National Defence for using that in any calculation of F-35 costs prior to 2010, if you were to describe to cabinet that is the way you do business.

When you agreed with the Auditor General's report on the problems with the acquisition of the Chinook aircraft in chapter 6, did you agree that from June 2010 forward you would use a new methodology in reporting to cabinet and to Parliament about life-cycle cost reporting?

[Robert Fonberg]

There are a number of questions there, but I do appreciate the member's offer to help me on this.

We'd have to go back to the action plan, but I believe that in 2010 we undertook to develop appropriate methodologies to life-cycle costs. We are in the process of developing those methodologies.

I would say just one thing—and the CFO may want to speak to this in response to a question. There is a difference—and I think people get a little bit confused—between the total cost of ownership of something and the life-cycle cost of a project or acquisition. So it is accurate to say that we agreed to address the methodological issues following the 2010 report, but we also acknowledged in our management action plan that it would take us time to develop those methodologies. Life-cycle costing is not a simple issue.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Mr. Fonberg, let me ask you this. Based on the Auditor General's Chinook helicopter report, the recommendations, and your acceptance of the recommendations on reporting of life-cycle costs, would the $9 billion acquisition cost figure and the $16 billion sustainment or operational cost figure—as presented by the Auditor General and roughly by the Parliamentary Budget Officer—be the correct numbers that you would have reported if you were to follow the recommendations and keep true to the recommendations of the Chinook helicopter report?

[The Chair, NDP, David Christopherson]

Briefly, please.

[Robert Fonberg]

I don't know because we actually haven't done it. We have reported $9 billion for acquisition; that is the envelope. Then $5.7 billion is for sustainment. As you all know, $10 billion was the estimate for operating, which we will firm up over time.

[The Chair, NDP, David Christopherson]

Thank you. Time has expired.

Moving along now to Mr. Aspin.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

Thank you, Chair. At this time I will defer my questions and my time to my colleague, Christopher Alexander.

[The Chair, NDP, David Christopherson]

Very good.

Mr. Alexander, welcome again, sir. You now have the floor.

[Chris Alexander, Conservative, Ajax—Pickering, ON]

Thank you.

As I was saying at our last meeting, before being rather rudely interrupted, the government has accepted the recommendation. The government has accepted the conclusions of the Auditor General's report. I want that to be on the record, both because it relates to the question I want to ask and because Mr. Byrne was seeking to obscure those facts at the end of our last meeting.

My question is for Mr. Guimont, the Deputy Minister of Public Works. It strikes us on this side, sir, that the Auditor General's conclusions relate to three main items. One is the sequencing of decisions. The second concern he had related to full life-cycle costs, which we've talked about at some length. And the third related to the whole question of a risk management framework for this unique project, which we have all agreed has characteristics that we haven't seen before in defence procurement in Canada because of the scale and nature of the project.

Could you, Mr. Guimont, outline for us how the seven-point plan and your oversight of the secretariat will serve to mitigate those three areas of concern that the Auditor General raised in his report and discussed with us at our last meeting?

[François Guimont]

Thank you, Mr. Chairman, for the question.

I would say the approach we will take in the secretariat is that we are going to focus on the tasks and priorities outlined in the seven-point action plan. We will look at the work that has been carried out for the F-35 program, and there's obviously a clear highlight on the issue of cost. It's front and centre on the seven-point action plan. So two key elements will be a review of the work carried out to this point, together with a clear understanding of costing.

We will, in achieving this or as we carry out our work, measure ourselves against the observations made by the OAG. There is a document that clearly speaks to certain deficiencies and concerns. That's the way we're going to be measuring the progress of the work we're going to be carrying out for the steps taken on the F-35, including the cost issues. That's the strategy or approach we're going to be using. That will address the issue of sequencing. It will address the issue of risk management. That's the thinking. That's picked up by—highlighted, I should say—the OAG.

[Chris Alexander, Conservative, Ajax—Pickering, ON]

Thank you for that answer.

My next question is for my colleagues from National Defence. We've focused, so far, overwhelmingly on the program to acquire an aircraft to replace the CF-18, as they're aging. It is a very important program, but as you've all said, it's still at the pre-acquisition stage, with a long way to run. In the meantime, there is a program under way to develop a joint strike fighter that involves Canada and roughly 10 other countries in one way or another. There was praise in the Auditor General's report for the way your department, Mr. Fonberg, handled Canada's involvement in that program, generating industrial benefits for Canadian companies, generating an opportunity for us to take part in a technological breakthrough in the field of military aircraft.

Could you describe for the committee, so that we all understand the benefits of this program to date for Canada, how you managed that program successfully, and what the main ingredients of success have been to date in ensuring that over 60 Canadian companies participate in the world's leading fighter jet development program?