Public Accounts Committee on May 1st, 2012

[Robert Fonberg]

Thank you very much, Mr. Chairman.

I will just say a couple of things. When we worked with the Auditor General, or with his office, on this report, I think we all recognized that stepping back over 15 years, this truly was a unique program that allowed us, with nine other partners from the beginning of 1997, to spread the developmental risks, the technological risks, and the cost risks of development, where most of that was actually being absorbed by the United States.

Dan Ross has been intimately involved with the program and the MOUs and development costs since his tenure in that job. I'll turn to Dan for a minute just to talk about the unique nature and the benefits.

[Dan Ross]

Thank you, Mr. Chair.

My organization has been involved in the program since 1997. I have a very small section that was instrumental, working with Industry Canada, in working with industry and leveraging opportunities for Canadian companies in a very proactive manner. As Mr. Kennedy said, or could say, our aerospace industry is the third largest in the world among the partners in the program for very small investments. In 1997, our initial contribution was $10 million, and in 2002 it was $100 million U.S. In 2006 we went to Treasury Board to continue to participate in the production, sustainment, and follow-on development phase, which gave us, and specifically the RCAF, unprecedented access to highly classified information. It also, as Industry Canada has mentioned, gave Canadian industry access to the development of new, leading-edge technology that will be exportable worldwide.

Back in 2006 we clearly felt there was no obligation to buy joint strike fighters at that time. But they continued to have the door open—for Canadian companies, my staff, and the air force staff—to the privileged information on how the program was developing.

We looked at the joint strike fighter at that time. That continues to be a viable option. As we told the government at that time, we would come back in the 2010 to 2012 timeframe to propose a solution for replacing the CF-18.

[The Chair, NDP, David Christopherson]

Okay.

I'm sorry. Time has well expired. Thank you both very much.

We'll go over now to Madame Blanchette-Lamothe.

You have the floor, Madame.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you, Mr. Chair.

With your permission, I am going to ask some questions on projections regarding benefits for industries.

Would you agree that those projections support some of the key decisions involved in the participation of Canada in the JSF program and the acquisition of the F-35s?

[Robert Fonberg]

Simon, would you like to answer?

[Simon Kennedy]

Thank you for the question.

Industry Canada is responsible for working on the industrial—

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Forgive me for interrupting you, but I have a lot of questions to ask.

I would like to know whether, yes or no, you would agree that industrial benefit projections are very important when it comes to deciding whether Canada will take part in projects like the F-35 one?

[Simon Kennedy]

They are certainly a part of the decision-making process of the government. Industry Canada gives advice on what the likely industrial participation benefits will be for industry. But the primary driver of acquisitions is the defence needs of the country. Industry Canada comes in after those needs are defined to work on what the industrial benefits would be.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

So it plays a role, even if it is not the only factor.

[Simon Kennedy]

Exactly.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

And yet, the Auditor General expressed some concerns with regard to benefit projections for industry. He said this: “We found that briefing materials prepared by the departments for decision makers and ministers did not explain the basis for the projections, or the consequent limitations involved in relying on those projections for decision making.”

Was there indeed a lack of information or transparency regarding these benefit forecasts?

[Simon Kennedy]

A good deal of work actually goes into the development of the estimates you're talking about.

Very briefly, the government receives, twice a year, from the prime contractors a very detailed list of all their requirements for the manufacture of the aircraft and a detailed list of all the Canadian companies that they believe can play a role. We sit down with the prime contractors twice a year to go through that list, discuss it, and validate it. In addition to that, we have site visits with many Canadian companies that are interested in the program or are part of the program to, in effect, do triangulation. We actually discuss with the Canadian firms their view of what the prime contractors are saying. All of that, which is actually a fairly significant amount of work, goes into the numbers you see in the documents.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

You say that a lot of work is done and you explain what it is, but that does not at all answer my question.

In his report, the Auditor General says: “ We found that briefing materials prepared by the departments for decision makers and ministers did not explain the basis for the projections, or the consequent limitations involved in relying on those projections for decision making.”

Do you agree, yes or no, that decision makers lacked information on the projections regarding industrial benefits?

[Simon Kennedy]

I think we would agree, certainly in hindsight, that we probably could have provided more detailed information and perhaps presented the information differently.

Having said that, I think it's been very clear since the outset of this program that this is a very different approach, that the nature of the opportunities was contingent, and that we would do our best to provide estimates to the government of what the potential total amount could be. But it's been very clear in our discussions with the industry over the last 10 years. In fact we were doing road shows with the industry as far back as 10 years ago to discuss the very different nature of this procurement and the fact that companies would have to compete on a best-value basis.

I think if one were to look at the testimony of ministers, both before committees of the House of Commons and from when the announcement of the MOU with the companies was made in 2006, it would be quite clear that the basis of this approach was one of best value and that companies had to compete.

I think it's been very clear that this is not a standard procurement, that there is uncertainty in terms of the total value, and that we've done our best to try to provide projections to the government of what the maximum amount of the opportunities might be. Could we have perhaps given a better breakdown or provided more detailed information? We certainly take that to heart.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

You are saying “maybe”, but you nevertheless recognize the appropriateness of doing more, given the context of the concerns expressed by the Auditor General. Is one “maybe” equivalent to saying “if it is possible to do better, we will do that the next time”?

[Simon Kennedy]

Absolutely. We've been looking very carefully at his recommendations and at ways we can provide a fuller picture of the potential opportunities going forward.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

In fact, it is not a formal recommendation and that is why I am raising it again. There is something else that has been emphasized and relates to projections. It has been said that only one optimal scenario was presented, rather than introducing some nuances and presenting other scenarios aside from the most optimistic one. Can things be done differently? Could they present different scenarios that would help the decision-makers make decisions based on an array of possibilities rather than on the most optimistic scenario alone?

[Simon Kennedy]

We'll certainly take a look at that. We're well aware of the comments the Auditor General has made in that area.

We know that at the very earliest development of this project, ranges were developed. When we actually had a prime contractor selected and we had gone further along, we felt we had good information to provide kind of the upper bound, but really there wasn't necessarily the same basis of information to start making projections of what a lower bound could be. We'll have to go back and take a look at that.

As I say, I think the concern about ranges is tempered by the fact that it's been common knowledge in the industry and within government circles for many years now that this is a project for which people have to compete and compete to win. There's been no uncertainty about the fact that there is some contingency to the opportunities.

[The Chair, NDP, David Christopherson]

Thank you very much. Time has well expired.

We go now to Madame Bateman.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you, Mr. Chair.

I would like to share my time with my colleague Mr. Laurie Hawn.

[The Chair, NDP, David Christopherson]

Very good. Do you mean share or...?

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

He may use my speaking time as he wishes.

[The Chair, NDP, David Christopherson]

You're giving him the full five minutes. Very good. Thank you, Madame.

Again, welcome, Mr. Hawn. You now have the floor, sir.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

Thank you to our witnesses.

I have a number of questions. The first one is for Mr. Fonberg, and it will have a brief answer.

It's been suggested—and this is just for the record—that DND kept two sets of books on the F-35. Could you comment on that very briefly?

[Robert Fonberg]

No, we just had one set of books, Mr. Hawn.