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Evidence of meeting #42 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

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

9:10 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

Thank you.

I would like to go back to what Mr. Khan has just said.

If I am not mistaken, you consider that an estimate of costs over 30 years is the closest to the usual practice in this area.

9:10 a.m.

Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament

Sahir Khan

Can you repeat the question, please?

9:10 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

You were just finishing a sentence and we did not have a lot of time left.

Could you tell me if an estimate of costs over 30 years is the closest to the usual practice in this area?

9:10 a.m.

Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament

Sahir Khan

For our methodology, we applied the practices for the procurement of military products that are normally used in the United States. Their Department of Defense uses 30 years as its base period. This corresponds to the lifespan of an F-18, according to the manufacturer's estimated lifespan of 8,000 flying hours. This number is then divided by the average number of hours of use per year. So the aircraft's normal and expected lifespan is set at 30 years in the industry, using a number of measures.

May 3rd, 2012 / 9:10 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

I would like to go back to the partial information you obtained and the information you asked for but did not obtain.

How would having all the information that you asked for have been useful to you? Would it have enabled you to do more meaningful calculations?

9:10 a.m.

Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament

Sahir Khan

The request of the Standing Committee on Finance was quite specific. It asked for life cycle costs. It is important because, in the Department of National Defense guide, life cycle costs are defined. Receiving partial information makes things more difficult.

In the course of our analysis, we believed that the information that we and the committee had been given represented all the costs. Later, we discovered, after the auditor general's report appeared, that the costs submitted to Cabinet were not the same. We can now see how those two amounts were arrived at and we can see that they are quite similar, in general terms.

9:10 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

A little earlier, Mr. Page said that he had asked for information on methodology, but that he had not received it. What would that information have allowed you to do?

9:10 a.m.

Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament

Sahir Khan

It would have allowed us to do a better comparison between the two and between the other estimates provided by other international bodies. This study of estimates lacks precision. So complete costs are very important in determining if the costs are really reasonable. In this case, it is essential to know those figures.

By knowing all the costs, we can determine how close our estimate is to the government one provided to Cabinet. In addition, the costs are closer to the estimates from the United States Department of Defense.

9:10 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

Is there a difference between the operating costs of the CF-18s and those projected for the F-35s?

9:15 a.m.

Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament

Sahir Khan

Yes. The Selected Acquisition Report of the United States Department of Defense states that it is quite significant. This is on slide 7 in the deck we provided to committee members. The Department of Defense says that the operating and required personnel costs associated with the F-35s is higher than the costs associated with the aircraft they are replacing. This information is on page 84 of the report that was published four or five weeks ago. The figures provided indicate a cost for an F-35 of $31,000 per hour compared to $22,000 per hour for an F-16.

9:15 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

For people like me who are not terribly familiar with this area, would you say that that cost is considerably different?

9:15 a.m.

Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament

Sahir Khan

The difference is significant. The original hypothesis was that this aircraft would cost more or less the same as the aircraft it replaced. The United States Department of Defense has concluded that this aircraft is quite costly in comparison to the aircraft it is replacing. This aircraft has more capabilities, but, in financial terms, it costs $10,000 more per hour to operate.

9:15 a.m.

NDP

Lysane Blanchette-Lamothe NDP Pierrefonds—Dollard, QC

In your opinion, is…

9:15 a.m.

NDP

The Chair NDP David Christopherson

I'm sorry, the time has expired.

Moving on, Mr. Kramp, you now have the floor, sir.

9:15 a.m.

Conservative

Daryl Kramp Conservative Prince Edward—Hastings, ON

Thank you, Chair.

I welcome our guests here today. It's really important that you're here to try to provide some clarity, so that we as Parliament and we in government can all live and learn from doing things right. Occasionally, if there's an error in an assessment in a particular region, this gives us the opportunity to correct it.

We're really pleased, of course, as you are so well aware, that this is timely and that we have not gone to the expenditure or the acquisition stage yet, so decisions still will be reached as to whether we should spend money or should not. We're very comfortable with that, and I think this is a beneficial investigation that we're doing here.

It is very well known that we've had significant success in acquiring industrial benefits out of this. I want to put forward a little bit of a balance sheet for it—a balance of estimates versus cost versus income.

Do you agree that we've had some significant industrial benefits?

9:15 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, we have certainly read reports that there are benefits with respect to the industrial benefits program. We really saw this as beyond our report, so we haven't commented on it in our report.

9:15 a.m.

Conservative

Daryl Kramp Conservative Prince Edward—Hastings, ON

Okay, but I think it is important, because it was noted in the Auditor General's report, which of course you'd be oh so familiar with, in which he lauded, of course, the success of the program in acquiring industrial benefits.

Would you agree with the Auditor General's assessment, or do you find some difficulty with it?

9:15 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, we don't really have a comment on that. I'm sure that Industry Canada officials are much better placed to comment on that program.

9:15 a.m.

Conservative

Daryl Kramp Conservative Prince Edward—Hastings, ON

Okay, but my suggestion would be that it's very important to investigate cost—there's no doubt about that—but it's also imperative that we base cost-benefit analysis on this, and that's why I think it would be reasonable to expect your department at some point....

Given the fact that we have the fifth-largest aerospace industry in the world, the third-largest aerospace industry among all of our allies, do you not think it would be reasonable to expect that there might be significant potential long-term benefits to Canada?

9:15 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, I think it's reasonable that there could be significant long-term benefits for Canada, but again, it was outside the scope of our report.

9:15 a.m.

Conservative

Daryl Kramp Conservative Prince Edward—Hastings, ON

Okay. So then you've never had an opportunity to talk to any of our industry partners across the country?

9:15 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Actually, sir, we have read reports on what these benefits could be, and at some point—there is some context in the paper we provided—we thought this would eventually be compared with the total life cycle cost estimate. Our job, we thought, was to look at one side of that equation, to look at the life cycle cost-benefits and get good estimates of what these benefits are, then provide an overall comparison to Parliament. But we focused on only one side. If I need to apologize for that, I apologize.

9:15 a.m.

Conservative

Daryl Kramp Conservative Prince Edward—Hastings, ON

No, there's no apology necessary; we're just trying to get some clarification. In any business, and of course in the business of running the country, there are expenses and there is income. I'm certainly not going to suggest that we extrapolate the success we've had today in the industrial benefits across the entire acquisition and suggest that we're going to make money on it; far from it. But it is my understanding that Parliament has budgeted approximately $700 million during the developmental stage, they have spent something in the neighbourhood of $300 million in the developmental stage, and in industrial benefits already we have in excess of $435 million.

So there have been some tremendous successes, particularly due to the fact that we have a vibrant aerospace industry that quite frankly performs a very significant role in our economy. We're very proud of that, and obviously we don't believe it should be minimized to any particular extent, particularly when we look at an acquisition cost and at our being a participating partner in this entire program, not only as one of the originating partners.

I think you can see where I'm going on this. When the U.S. Air Force alone is going to build 2,400 of these just for their use alone, there can be some significant benefits down the road to Canada.

So I understand that cost is very important, but I would suggest very strongly, sir, that I think.... I'm not going to suggest that you do another study now, but what I am suggesting is that we could certainly be mindful of this story. I think this is a story that Canadians should hear. At that point.... I'm hopeful that at some point, you or your department or officials will start to ascertain the regional benefits from this from across the country.

I know we can ask industry for that, and they'll give us that information, but for security purposes, right now a lot of these companies cannot even be identified; I think we can all understand that. But you have the privilege, sir, and the means with which to do some preliminary investigation, because of your security clearance. Have you done that?

9:20 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, no, and it was never our intention to minimize this. I thought we were quite clear in the report we released in 2010 that we saw this as beyond the scope of our paper, but we did highlight it as being very important.

9:20 a.m.

Conservative

Daryl Kramp Conservative Prince Edward—Hastings, ON

Okay. Thank you very much.