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Evidence of meeting #41 for Public Accounts in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cost.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Robert Fonberg  Deputy Minister, Department of National Defence
André Deschamps  Commander, Royal Canadian Air Force, Department of National Defence
François Guimont  Deputy Minister, Deputy Receiver General for Canada, Department of Public Works and Government Services
Simon Kennedy  Senior Associate Deputy Minister, Department of Industry
Michelle d'Auray  Secretary of the Treasury Board of Canada, Treasury Board Secretariat
Kevin Lindsey  Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence
Dan Ross  Assistant Deputy Minister, Materiel, Department of National Defence
Tom Ring  Assistant Deputy Minister, Acquisitions Branch, Department of Public Works and Government Services

10 a.m.

Conservative

Laurie Hawn Conservative Edmonton Centre, AB

Thank you.

Mr. Lindsey, we talked about the PBO's assumptions in his top-down analysis. Was the problem with his cost projection of $148 million, or whatever, that it was based on the average of the three models and not just on the F-35?

10 a.m.

Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence

Kevin Lindsey

No, Mr. Chair. In this case the PBO's estimate was based on the variant that Canada is going to buy but on a point on the production and learning curve far behind where we actually are today. As a consequence, that number was significantly overstated from the SAR 2009 acquisition cost.

May 1st, 2012 / 10 a.m.

Conservative

Laurie Hawn Conservative Edmonton Centre, AB

Thank you.

Mr. Fonberg, we talked about the fact that for many years DND has typically used 20 years to project life-cycle costs. I would suggest that's because of the risk of all the unknowables: cost of fuel in 20, 30, or 40 years; missions the airplane might undertake; technological challenges that come along. My recollection of the F-18 program is that the same process was applied there. We had projected the airplane to be for phase-in plus 15 years, which would have taken it to 2003, when we'd be looking for new aircraft, which in fact we have been doing.

Could you comment on the fact that this has been the methodology through successive governments of both stripes, notwithstanding what's going to happen going forward?

10 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

I think that's true. ADM Mat could speak to that in a little bit more detail. It's at the 20-year point, especially in sustainment, that the confidence bands really start to weaken around estimates.

Dan, would you like to say anything on that issue?

10 a.m.

Assistant Deputy Minister, Materiel, Department of National Defence

Dan Ross

Yes. As the deputy said, we've used these 20-year estimates for air programs since 2004. There is a significant amount of uncertainty in aerospace technology costs when you get beyond the 20 years. It becomes very difficult to predict. We have 60 years of experience in flying jet fighters, and we understand how difficult it is to predict those technical and structural issues.

For example, when we introduced the CF-18, we experienced structural issues with the vertical stabilizers. This was totally unpredictable, and we had to resolve those issues.

Over the past seven years we've tried to put in place performance-based, long-term support contracts for our air fleets, like the new Hercules CC-130J fleets. Industry came back to us and told us they could not agree to long-term rates without imposing large price increases to mitigate the uncertainty of future costs. We ended up negotiating 20-year contracts based on firm fixed rates for only five years at a time.

10:05 a.m.

Conservative

Laurie Hawn Conservative Edmonton Centre, AB

Mr. Fonberg, it's also been stated that $25 billion budgets have been approved in cabinet, which is not true. Could you comment on how the budget approval process would work as the program progresses?

10:05 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

The government has been clear that there will be a $9 billion acquisition envelope. At the time of the decision in 2010, we put forward for approval a $5.7 billion envelope estimate for in-service support and sustainment. We acknowledged that we expected the operating costs to be similar to those of the F-18, on the order of $10 billion over 20 years. The affordability within our budget would be checked off in much greater detail when those documents cleared cabinet and finally got to Treasury Board, which they haven't done yet. This will ensure that those estimates are affordable within our base budget, which comes back to Parliament every year in the appropriations process.

10:05 a.m.

Conservative

Laurie Hawn Conservative Edmonton Centre, AB

General Deschamps, there have been criticisms about the airplane and the test program from people who have no knowledge of test programs and what they're designed to do. Is it fair to say that a test program like we had with the F-18 is happening with the F-35? I'm talking about one designed to discover faults so that they can be corrected before the aircraft goes into production. Just because an airplane fails some test point in the test program doesn't mean the airplane won't ultimately do its job, does it?

10:05 a.m.

LGen André Deschamps

Thank you for that question.

We've been flying fighters in Canada for over 60 years, and there's been a lot learned on how to do tests and evaluation. If you've seen the movie, The Right Stuff, you know what it looked like in the fifties and sixties, when there was high risk in testing new platforms. We've progressed a long way now. There are always surprises in test and development, even though they're a lot fewer than they were 20 or 30 years ago. But there will still be discoveries as they do these testing and development phases.

We're certainly not perturbed. We expect that they will discover challenges as the airframe is pushed to a wider envelope, as happens in its test and evaluation phase. But that discovery phase is useful. The last thing you want is to have these airplanes deployed and then five years later find these faults. At that point, they would be far more problematic to repair, even if they're repairable after they're on the line. We're quite happy to see the discovery phase take care of those issues ahead of procurement.

10:05 a.m.

NDP

The Chair NDP David Christopherson

Sorry, your time has expired, Mr. Hawn.

Mr. Byrne, you have the floor.

10:05 a.m.

Liberal

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

Mr. Fonberg, do you still hold true your statement that the life-cycle cost of the CF-18 Hornet and the F-35 were identical? Do you hold that view today?

10:05 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

I don't think I ever said the life-cycle cost of the CF-18 and the F-35 were identical.

10:05 a.m.

Liberal

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

Maybe I misinterpreted you. I thought you said the operational costs of the CF-18 and the F-35 were the same.

10:05 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

No. What I said was that for decision purposes we informed cabinet and the decision-makers that we thought the operating costs of the F-35 would be in a zone similar to those of the F-18 fleet. I believe that's what I said.

10:05 a.m.

Liberal

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

Do you still hold that view to be true?

10:05 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

As an estimate, it's the best estimate we have right now, yes.

10:05 a.m.

Liberal

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

You've never been informed by the U.S. joint strike fighter program office to suggest anything contrary to that.

10:05 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

I could turn it over to Mr. Ross. I don't believe the joint strike fighter program would have a particular view about our operating costs.

Dan, would you like to comment on that?

10:05 a.m.

Assistant Deputy Minister, Materiel, Department of National Defence

Dan Ross

The joint strike fighter office gives us estimates of acquisition cost for flyaway F-35s. We put ammunition and fuel in. It also gives us estimates for maintenance, repair, overhaul—what we call sustainment. It doesn't give us estimates on how we would pay salaries or fix buildings or provide base services in Bagotville and Cold Lake, which is what the deputy was referring to as operating costs.

10:05 a.m.

Liberal

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

Thank you, Mr. Ross.

Notwithstanding the actual U.S. joint strike fighter program office, have you received no other information from any other source that would cause you to question that particular linear equation, that one-to-one cost estimate?

10:10 a.m.

Assistant Deputy Minister, Materiel, Department of National Defence

Dan Ross

We haven't entered the detailed definition phase yet, and when we do, we'll do detailed studies on any infrastructure we need to upgrade in Bagotville and Cold Lake, on the number of simulators, training, and those detailed operating cost estimates when we get into definition.

10:10 a.m.

Liberal

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

Thank you.

Mr. Fonberg, what is the number you would now report to this parliamentary committee as the total acquisition and total operational sustainment costs over the life cycle of the F-35? Is it different—I'll just use these numbers descriptively—from the $9 billion and $6 billion figures, or would you now switch it to the $16 billion and $9 billion figures?

10:10 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

The CFO may want to comment on this. Just to be clear, the numbers we used, very clearly, Mr. Chairman, were the $9 billion acquisition envelope, $5.7 billion for sustainment for 20 years, and operating cost estimates of $10 billion within our base budget for a 20-year period.

10:10 a.m.

Liberal

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

You never reported the $10 billion to Parliament. You just reported the $9 billion operational sustainment and the $6 billion capital acquisition. The $10 billion is what's unique and is the cause for the Auditor General to suggest that Parliament was misinformed—and potentially cabinet was misinformed, but that's another story.

What I'm asking, then, is if you were to use the recommendations as outlined in chapter 6 in the Auditor General's report on the acquisition of the Chinook helicopters, which was received by Parliament in June 2010, I believe, and you accepted all of the recommendations.... If the Department of National Defence, the Government of Canada, accepted all of the recommendations, what number would you report now to a parliamentary committee and therefore to Parliament as the appropriate number?

10:10 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

Again, to be clear, I believe the report the member is referring to is November 2010, not June 2010—