This week, I changed much of the tech behind this site. If you see anything that looks like a bug, please let me know!

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

8:50 a.m.

NDP

The Chair NDP David Christopherson

We'll now call this 41st meeting of the Standing Committee on Public Accounts to order.

My apologies for the delay of a couple of minutes. Some of us were at the National Prayer Breakfast and it took a little while to get over here. The Word was there, but it was a tad late.

Colleagues, the procedure is fairly straightforward this morning. We are hearing witnesses on chapter 2. We will have opening remarks from the deputies who are present, and then we will go in rotation in the usual prescribed fashion until our allotted time is exhausted.

If there are no questions or concerns about the procedure, then indeed we will begin.

Good morning to all our guests. It's a pleasure to have you back here at public accounts, and I know you're all thrilled to be here too—

8:50 a.m.

NDP

Mathieu Ravignat NDP Pontiac, QC

Mr. Chair, I apologize for interrupting you, but may I propose, given that the witnesses were kind enough to give us their written comments, that we simply have those as written and pass to questions immediately in order to have enough time? We do recognize that there are eight people here today and we have very limited time for asking a question.

8:50 a.m.

NDP

The Chair NDP David Christopherson

All right. Let's try to do this quickly. Let me just test the room, then.

Colleagues, there has been a suggestion that we deem the opening remarks to have been received because they are in writing, although I understand that one deputy did not bring a written copy. I don't know why, but they didn't.

Notwithstanding that, I'm in the hands of the committee. Is there agreement?

8:50 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

I think it's normal practice that we allow our witnesses at least the opportunity to have opening remarks. I would recommend that we continue in the normal way, and that is to allow our witnesses to have their opening remarks.

8:50 a.m.

NDP

The Chair NDP David Christopherson

All right. I'm not seeing unanimity.

You have the right to place a motion, but I think you know where that's going to go, given what we've heard. I would suggest that we'll continue in the usual fashion.

Mr. Byrne.

8:50 a.m.

Liberal

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

Thank you, Mr. Chair.

There may be unanimity if we were to allow or ask for just one minute of opening remarks, with the statements as presented tabled.

8:50 a.m.

NDP

The Chair NDP David Christopherson

Let me test the floor on that.

Are there those who are in favour of limiting it to one minute on opening remarks?

8:50 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Mr. Chair, I think the difficulty is that the witnesses have prepared opening remarks, so to ask them to change that would mean that it's not really fair to our witnesses to have to ad lib, to go off their written opening remarks. I don't think it's fair to the witnesses to do that.

8:50 a.m.

NDP

The Chair NDP David Christopherson

Okay.

Again, same as before, there is no unanimity. Are there further comments on this? Let's not get too bogged down here, folks.

Mr. Allen.

8:50 a.m.

NDP

Malcolm Allen NDP Welland, ON

I guess I understand that the government would like the opening remarks, but all I would suggest and ask the government to do, since we need to talk to these witnesses in as fulsome a way as possible, is this. We have Thursday open. I would suggest to the government that if we don't get through all of our questions in the sense of the fullness of talking to all eight witnesses, we actually do it on the Thursday. I would ask the government to think about that—not necessarily decide upon it at this moment.

Let's see where we get. I would be happy to get under way.

8:50 a.m.

NDP

The Chair NDP David Christopherson

All right.

Do you have the need to take the floor still? No? Thank you.

I'm not hearing unanimity on that and I don't have a motion in front of me, so unless I hear differently from colleagues, I am going to pick up where I left off.

I will proceed in inviting our guests both to introduce themselves and to read their opening remarks. Upon conclusion, then, we'll begin our rotation.

Again, if there are no further interventions, I guess we'll probably start with the Deputy Minister of National Defence. That would make the most sense.

But I leave it in your hands, folks. Please introduce yourself and your delegation and present your opening remarks.

8:50 a.m.

Robert Fonberg Deputy Minister, Department of National Defence

Thank you, Mr. Chairman. I can actually speak quickly.

With me I have Lieutenant-General André Deschamps, Commander of the Royal Canadian Air Force; Kevin Lindsey, Chief Financial Officer; and Dan Ross, ADM Materiel.

Mr. Chairman and members of the committee, thank you for this opportunity this morning.

I'll share my time briefly with the Commander of the Royal Canadian Air Force.

Acquiring major military capabilities is complex. It takes many years.

In his report, the Auditor General underscores the innovative and unique nature of the joint strike fighter program and notes, “There is no single set of federal policies or rules that govern participation in an international initiative such as the JSF Program”. We agree with the Auditor General on this point. We are confident that the government's seven-point plan sets out a strong footing to move forward on the AG's concerns.

The government has been involved with the joint strike fighter program since 1997. With the advantage of hindsight, and with the AG's observations in mind, there are clearly things we would have managed differently in the program and things that all of us could have done better.

On the matter of costing, there are three key components: acquisition—

8:55 a.m.

NDP

The Chair NDP David Christopherson

Excuse me, Mr. Fonberg.

Madame Blanchette-Lamothe.

8:55 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

As a francophone, I must ask you to slow down a bit. I think our interpreters are really having trouble following you.

Thank you.

8:55 a.m.

NDP

The Chair NDP David Christopherson

All right. I think I'm seeing a smile on the face of the interpreters in agreement with that.

So if we could.... Just a bit—not much.

8:55 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

I'm trying to balance between speed and—

8:55 a.m.

NDP

The Chair NDP David Christopherson

I understand, and we appreciate those efforts.

8:55 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

Would the member like me to dial this back at all? Do you want me to go back to something?

8:55 a.m.

NDP

The Chair NDP David Christopherson

No, no.

8:55 a.m.

Deputy Minister, Department of National Defence

Robert Fonberg

Fine.

On the matter of costing, Mr. Chairman, there are three key components: acquisition, sustainment, and operating. For the F-35 the acquisition envelope has been set at $9 billion. Sustainment and operating costs are estimated at $5.7 billion and $10 billion respectively for 20 years, beginning when the aircraft would be acquired later in this decade.

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 did we talk about operating costs, Mr. Chairman.

On operating costs, the Vice Chief of the Defence Staff oversees a rigorous business planning process every year to ensure that the departmental costs of operating all of our fleets are affordable within our base budget.

The operating costs for the next generation fighter program would be included in the department's base operating budget—as are the operating costs of all other fleets—and debated in Parliament annually as part of the estimates process.

For decision-making purposes, we have assumed that the operating costs of the F-35s will be similar to those being incurred in our base budget for operating the CF-18 fleet.

Our approach to costing has never been characterized as “full-life cycle”. Our approach has been consistent and compliant with Treasury Board policy and guidance.

In this regard, in posting a comparison of the department's estimates and the Parliamentary Budget Officer's estimates on our website, we used the same average price per aircraft as all nine partners are using and have received from the joint project office, and, on a good-faith basis, we presented our estimates on the understanding that the Parliamentary Budget Officer did not include operating costs in his calculations.

As stated in the chapter, Mr. Chairman, we accept the Auditor General's recommendation on life-cycle costs, and within the context of the seven-point plan set out by the government, we will report annually on cost estimates through the new national fighter secretariat.

I will now turn my remaining time over to the Commander of the Royal Canadian Air Force, Lieutenant-General André Deschamps.

8:55 a.m.

Lieutenant-General André Deschamps Commander, Royal Canadian Air Force, Department of National Defence

Thank you, Deputy.

Mr. Chairman, members of the committee, ladies and gentlemen, bonjour. Thank you for this opportunity to contribute to this important discussion on replacing Canada's fighter jets.

As mentioned in the Canada First Defence Strategy, the Canadian Forces need to replace our aging CF-18 fleet with new fighter aircraft to help our military personnel defend our sovereignty, to remain a credible partner in the defence of North America and to give Canada efficient and modern air capacity for international operations.

Following the announcement of that strategy in 2008, we analyzed the current and future operating environments and associated threats. We assessed current and emerging technologies and derived capability gaps that would be a reality in the 2020 era and for the follow-on 30 years. What became clear to us is that many nations are actively engaged in developing and fielding advanced technologies that will seriously challenge current fighter capabilities.

We also expect to see these advanced technologies proliferate in ways that will be difficult to anticipate and control. This is what formed the basis of our operational requirements for the next-generation fighter aircraft. Requirements focused on mission success and aircrew safety. This analysis led to a statement of operational requirements, including mandatory capabilities that clearly pointed toward a fifth-generation fighter.

The bottom line is that tomorrow's operating environment will require stealth, the ability to sense and process vast quantities of information in a very short time, and the ability to operate with others, starting with our closest allies, anywhere around the globe.

Based on our analysis and my responsibilities as the commander of the RCAF, I recommended the only aircraft available that could effectively deliver operational success and optimize the safety of our crews.

While the next generation fighter procurement process continues, I am going to provide the National Fighter Aircraft Procurement Secretariat with the information it requires to assume its coordination and oversight responsibilities. With my staff, I am confident of the successful transition to the next generation fighter aircraft, while discharging my accountability to deliver the operational capacity that our country requires.

Thank you, Mr. Chair.

9 a.m.

François Guimont Deputy Minister, Deputy Receiver General for Canada, Department of Public Works and Government Services

Good morning, Mr. Chair.

I am François Guimont, the Deputy Minister of the Department of Public Works and Government Services Canada. I would also like to introduce Mr. Tom Ring, who is the Assistant Deputy Minister for Acquisitions in my department.

Thank you for the opportunity to appear here today to explain the role of my department in the replacement of Canada's fighter jets. With respect to military procurement, my department is responsible for the acquisition of defence supplies for the Department of National Defence in support of their responsibilities.

Our colleagues in the Department of National Defence are the program and technical authority and as such have duties that include, for example, the definition of operational requirements, the preparation of technical evaluations, and the responsibility for associated budgets.

With regard to PWGSC, the Defence Production Act provides the minister of Public Works and Government Services with the exclusive authority to buy or otherwise acquire defence supplies required by the Department of National Defence. As such, the department is the contracting or acquiring authority for these types of acquisitions.

For ease of reference, the respective responsibilities of the technical authority as outlined by the Auditor General are appended to my speaking points today.

I would like to address the issue of due diligence with specific reference to my department's role in the replacement of Canada's fighter jets.

In that respect, we engaged in discussions with DND, the Technical Authority, to understand the high level mandatory capabilities. We consulted on the high level mandatory capabilities with the technical experts at DND, to determine if a competitive process could be conducted. These mandatory capabilities shaped the resulting procurement strategy. If more than one product can meet the mandatory requirements, then a competitive process should be held.

We considered the DND market analysis. Moreover, we met with another potential aircraft manufacturer to discuss its ability to meet mandatory capabilities set forth by the technical authority. We determined that the procurement strategy was in accordance with the Treasury Board's contracting policy and that this acquisition met the requirement of paragraph 6(d) of the government contracts regulations for a sole-source acquisition. In accordance with our department's supply manual, we requested written confirmation from DND, the technical authority, that the F-35 is the only aircraft available to Canada that has fifth-generation capabilities and that meets the high-level mandatory capabilities of the Royal Canadian Air Force.

Mr. Chair, it is on that basis that Public Works and Government Services feels that it exercised due diligence commensurate with the current stage of the project. In fact, in his appearance here last week, the Auditor General noted that we did exercise some due diligence. However, he deemed it insufficient.

While no recommendation was directed at PWGSC, we use every opportunity to continually improve our due diligence actions for complex and unique procurements.

The government action plan announced on April 3 clearly frames how due diligence will be applied as we move forward with replacing Canada's fighter jets. These seven action points identify the respective roles of key departments, including my department. A secretariat will be led by Public Works and will ensure the delivery of the government's seven-point action plan.

The terms of reference governing the committee structure are being drafted, and we are also active in staffing and defining priority tasks for actions.

The secretariat will focus on the following outcomes: first, governance and coordination through collaborative arrangements with the key departments involved; second, strengthened due diligence through increased oversight and third party involvement; finally, openness and transparency through clear articulation of timelines, expectations and timely communications.

The deputy minister governance committee, which will be a key component of a new governance structure, recently met and began its work in support of the action plan. Public Works and Government Services Canada is committed to playing a lead role in both coordination and oversight of the process in a manner that meets the expectations of Parliament and citizens.

Thank you.

I will be happy to reply to your questions.

May 1st, 2012 / 9:05 a.m.

Simon Kennedy Senior Associate Deputy Minister, Department of Industry

Mr. Chair, I will be very brief in my remarks.

9:05 a.m.

NDP

The Chair NDP David Christopherson

Thank you.

9:05 a.m.

Senior Associate Deputy Minister, Department of Industry

Simon Kennedy

Good morning, my name is Simon Kennedy and I am the Senior Associate Deputy MInister at Industry Canada. Thank you for inviting me to speak here today.

Industry Canada's mandate is to help make Canadian industry more productive and competitive in the global economy. This includes leveraging major investments in military equipment to encourage long-term industrial development and significant economic activity in Canada.

The F-35—or joint strike fighter—program is unique, as is its approach to industrial participation. All JSF partner countries agreed to forgo offset programs, like our industrial and regional benefits policy, which would normally be applied to military procurement. Instead, work on the JSF program is awarded on a best value basis, meaning that companies are given the opportunity to compete for F-35 work.

While we forgo the guaranteed minimum amount of economic activity that would come with an IRB approach, the industrial participation model being pursued through the F-35 consortium offers other important benefits for Canadian companies.

First, these companies have the opportunity to be involved in the early development of a very advanced fighter aircraft, allowing them to develop cutting-edge technologies that can be applied elsewhere in their businesses. Second, these companies can bid on contracts involving the production of a global fleet of over 3,000 partner aircraft, not just those planes that are directly associated with Canada's purchase. Finally, Canadian firms that are involved in the production of the JSF are well positioned to maintain and repair the equipment they make over the decades to come.

Because of the unique nature of this program, Industry Canada has been actively engaged in educating Canadian companies about the program and in helping them position themselves to succeed. We've been doing so for more than a decade through the development and production phases of the program and, increasingly, the sustainment phase.

Canadian companies have done well. Since Canada joined the joint strike fighter program in 1997, 70 Canadian companies have received $435 million U.S. in contracts. Participation in the JSF program provides the opportunity to compete for billions more over the program's lifetime.

Canadian companies are well positioned to succeed. Canada has the fifth-largest aerospace sector in the world and the third largest within the JSF partnership. The globally competitive nature of our industry is a strong base from which to pursue opportunities going forward.

I would be pleased to answer any questions you might have regarding Industry Canada's role in this program.

Thank you.