Public Accounts Committee on May 1st, 2012

[Malcolm Allen, NDP, Welland, ON]

Rather than talk to the progress, sir, why indeed didn't it happen with the F–35s, if you acknowledge that you didn't do full life-cycle costing for the maritime helicopters and the Chinooks and agreed with the AG that you would do it in future projects? Yet you've now come back to me...and let me quote you, sir, from your statement this morning:

I would note that the approach we took for costing the F–35 is exactly the same approach—and the same 20-year timeframe—that has been taken with all our air asset procurements going back at least to 2004: for the maritime helicopter project, the Chinooks, the Hercules J models, and the new C–17 Globemasters.

In each case, announcements and communications focused only on the costs of acquisition and sustainment; never on operating costs.

Sir, in light of your statement today and that in 2010 you accepted the Auditor General's report—and I'm not going to go back and quote the report from the book I have in front of me from 2010—why didn't you do what you said you would do in 2010 with this project?

[Robert Fonberg]

Mr. Chairman, just to get the timing and the sequencing right, the costing and the decision documents for cabinet were completed in the spring of 2010 and the Auditor General's report was in the fall of 2010. Our management action plan, which spoke to that recommendation, spoke to timing that would have seen that work completed, I believe, later in 2011. We can update on the timing, but the fact is, the costing we did was seven or eight months before the Auditor General's report in 2010.

[Malcolm Allen, NDP, Welland, ON]

Actually, sir, I beg to differ. The costing you did goes back to the 2008-09 budget, when you said the costing was $25 billion. Clearly in 2008-09 you knew it was $25 billion. In 2010 you came out with a new costing.

How did $25 billion get to $15 billion, sir? In light of the fact that you had asked for $25 billion as a costing estimate, a full life-cycle cost...and kudos for doing it right in 2008-09. So how did you get it so wrong after the fact, when you dropped it to $15 billion from $25 billion?

[Robert Fonberg]

Mr. Chairman, we actually tried to clarify with the Auditor General his comments about $25 billion in 2008-09. We never had such an estimate. So you'd have to speak to him about where that estimate actually came from.

The fact of the matter—

[Malcolm Allen, NDP, Welland, ON]

Thank you, sir.

I'm interrupting, and I hate to do this to you—you know that—but time is sensitive here.

He takes the number from the budget that your minister put forward to cabinet to ask Parliament to authorize $25 billion; that's where it came from. Are you saying, sir, that you as deputy minister did not require the $25 billion and did not ask for it?

[Robert Fonberg]

No. What I'm saying is that there was no $25 billion in a decision document in 2008, Mr. Chairman, as far as we can tell. You'd have to ask the Auditor General where that number actually came from. We spoke to his office and told him we would be clarifying that issue.

If you'd like me to go on with regard to the $25 billion to $15 billion...if there's time; I don't know.

[The Chair, NDP, David Christopherson]

It's up to you, Mr. Allen. Do you want him to conclude or do you want to move on?

[Malcolm Allen, NDP, Welland, ON]

What you're telling me, just so I'm clear, is that the department never costed the life-cycle cost of the F-35 in 2008-09, and that the department did not ask in that budget for $25 billion, and that the Auditor General is wrong when he makes that statement in that paragraph?

[Robert Fonberg]

To the absolute best of my knowledge, that's actually correct, Mr. Chairman.

[Malcolm Allen, NDP, Welland, ON]

So the correct part is that the Auditor General is wrong.

[Robert Fonberg]

His statement, not in his report itself but to my understanding from his testimony last week, was that he got it wrong on the 2008 issue and the $25 billion.

[Malcolm Allen, NDP, Welland, ON]

I guess we'll have to ask the Auditor General how he got his numbers wrong.

Notwithstanding that, sir, are you saying that your number has always been $15 billion, that you never had a number of $25 billion?

[Robert Fonberg]

No, in.... I think, actually, that issue has been clarified, Mr. Chairman.

Just to be clear, in 2008, when the Government of Canada approved the Canada First defence strategy, we included at that time—publicly, I believe—a $9 billion acquisition envelope. When the decision documents were prepared for cabinet in 2010, we sought $9 billion for acquisition, $5.7 billion for in-service support over 20 years, and we indicated that we expected that the operating costs of the aircraft over 20 years would be roughly the same as the CF-18 fleet, about—

[Malcolm Allen, NDP, Welland, ON]

Could you tell me the number, sir? I hate to interrupt you, but I don't know what the number for the CF-18 is. Do you know what it is?

[Robert Fonberg]

Yes. It's basically the same number we used for the F-35. We said we thought the operating costs would be similar, so some $10 billion over 20 years.

[Malcolm Allen, NDP, Welland, ON]

So that number would be—

[The Chair, NDP, David Christopherson]

Mr. Allen, time has expired.

[Malcolm Allen, NDP, Welland, ON]

Thanks, Chair.

[The Chair, NDP, David Christopherson]

Thank you.

We'll go now to Mr. Kramp, vice-chair of the committee.

You now have the floor, sir.

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

Thank you, Chair.

Welcome to all of our witnesses here today. It's a pleasure to have you here. We'll try to get some clarity with regard to some of the perceptions or misperceptions that are out there.

The bottom line is that at some point we'll need to know exactly how much this will cost Canadian taxpayers. Treasury Board and/or cabinet will actually make a decision. Of course, there have been no acquisitions to date, and no expenditures for acquisitions, but when that time does come, obviously information is critical.

The Auditor General made it clear that many of the costs are not yet reliably known, or cannot even be fully estimated at this point. That, of course, includes the basic recurring flyaway costs, which of course are debatable in a number of areas. There are the costs of the required Canadian modifications. We're not buying an identical aircraft. I understand there are three models out there. There obviously will be cost differentials. Of course, the different equipment on them will obviously make a significant difference.

Going forward, my question to National Defence would be that at some point in this process.... As a matter of fact, this might even eventually come to the secretariat, but I'm asking for an opinion now from National Defence. When do you anticipate that these cost estimates, as this process becomes more complete, will become available?

[Robert Fonberg]

Mr. Chairman, I would speak just very briefly to this and then turn it over to the assistant deputy minister of materiel, who has a very close working relationship with the joint project office.

Just on one point you raised, on the issue of the variant, I think there has been a lot of confusion. Of three variants of this aircraft, Canada is buying the one that is most advanced in its flight testing, in the conventional take-off and landing, which is tracking very well in its flight testing and will be the cheapest of the three models.

A lot of people use averages of the three models and various other numbers. The joint project office's number, which they send to Congress and which has been consistent, for the variant we would buy in the years we would buy it, was $75 million, the unit recurring flyaway cost in the SAR 2009, in that report. That number in the latest report, which we'll build our estimates off, is up around $85 million. But I would ask the ADM Materiel—so our acquisition envelope, fixed at $9 billion—to speak to the issue of how the estimates for in-service support and operating will be firmed up as we go forward.

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

Go ahead, please, Mr. Ross.

[Dan Ross, Assistant Deputy Minister, Materiel, Department of National Defence]

Thank you, Deputy and Mr. Chair.

I would like to clarify that of the four phases of a project—identification, options analysis, where you identify your high-level requirements, do your preliminary estimates and seek approval in principle to begin a project, and then the definition work, where you've refined those detailed costs and plans for infrastructure and weapons and logistics set-up, etc.—we're still in the options analysis stage. We have not received Treasury Board approval to begin funded definition, in which you do the detailed, refined, uniquely Canadian costing work.

But to answer the question specifically, annually the joint strike fighter program office in Washington provides cost estimates to the partners on two things: the unit flyaway cost—the cost of an actual joint strike fighter, by the years in which those aircraft were produced—and as well, their estimates of what in-service support and sustainment would cost.

We receive those estimates every spring, and we go down to the joint project office, sit down, and have a very detailed formal dialogue with them, to have a detailed understanding of the acquisition piece and the sustainment piece, to which we add anything that would be unique to our fleet of aircraft—our choice of how many simulators, our logistics set-up, etc. That process happens annually and is normally completed by the summer of each year.

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

Okay. So you're suggesting, then, that there will be a strong monitoring process in place. Are you comfortable with the process right now, or do you think this will be more fully developed within the new secretariat?

[Dan Ross]

The secretariat will assist us in that and provide more rigorous...not necessarily a challenge function, but assistance. The process is as rigorous as it can be for an aircraft that we won't take delivery of for eight years. At this point in time, without funded definition activities ongoing for our own costing, we really are price-takers in the unit flyaway costs and the preliminary estimates of sustainment.