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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

9:30 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

No, we excluded all development costs.

9:30 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

No? Okay, we're not on the hook. Under that MOU, do member countries get a lower price for the plane than non-member countries?

9:30 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Yes, I think we—

9:30 a.m.

NDP

The Chair NDP David Christopherson

Mr. Page, please answer briefly. We have run out of time.

9:30 a.m.

Parliamentary Budget Officer, Library of Parliament

9:30 a.m.

NDP

The Chair NDP David Christopherson

That's as brief as it gets.

Thank you, Madam Bateman.

In rotation now, we'll move over to Mr. Allen.

May 3rd, 2012 / 9:30 a.m.

NDP

Malcolm Allen NDP Welland, ON

Thank you, Chair.

My thanks to our guests for being here.

Mr. Kahn, you were telling us why we looked at U.S. numbers and why we didn't look at Canadian numbers. Walk us down that path a bit more. Give us a decent overview of how that unfolds, why it's important, and why we end up basically at the same stop at the end of the day.

9:30 a.m.

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

Sahir Khan

The program has had well-publicized cost overruns and delays. But one of the advantages is that we now have some useful reference points. We've recommended that parliamentarians at least consider that figures coming out of the selected acquisition report, plus reports from the U.S. Government Accountability Office, begin to illuminate the subject—providing estimates on both acquisition costs and O and S, long-term sustainment--in effect, life cycle costs.

There are now good reference points. A year ago when we did our report, there was not an independent estimate that you could pull out for the F-35A or for sustainment, of which operating support is the largest component. A year later now, you're seeing these numbers on a selected acquisition report and through the U.S. Department of Defense's CAPE unit. You're seeing average procurement unit cost numbers that are also important, because this is the basis of budgeting in the United States and appropriations, not recurring fly-away.

You'll see in the selective acquisition report that the same figures used here will be part of the defence department's submission for the budget process.

9:30 a.m.

NDP

Malcolm Allen NDP Welland, ON

Since we will buy this plane, if we buy it, from the U.S. government, not actually from Lockheed Martin—that's the way it will be eventually, if we decide to buy this plane—we get the same price they get for that particular model, according to the MOU.

Is it safe to assume that the cost to operate here would be plus or minus 5%, say, of what the costs are to operate in the U.S.?

9:35 a.m.

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

Sahir Khan

Sir, at this point that would be speculative. I think we can refer you to the fact that they've now done an estimate of the cost difference—their belief in the cost difference—using parametric models to look at the O-and-S cost, operating and support, per flying hour for the F-35. You'll see on page 84 that they actually give you the flying hours for the F-35A versus the other variant. We've provided a kind of illustrative calculation of that, and you can now start to see those indications.

To your first question, it is useful now to start using these reference points to look at what's reasonable. I think it's the same point about parametric modelling and the use of it: what's reasonable.

If points start to converge, then at least, from a parliamentary point of view, there's a richer planning environment. You can have a little more confidence going forward.

We caution that they're all estimates at this point. But to your first question, it becomes interesting when they start to converge. That's why we think the latest report published just five weeks ago from the U.S. Department of Defense is very handy in that regard.

9:35 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, if I may add very quickly, just to put in a plug for the Department of National Defence officials, we would say the numbers they presented to cabinet on a full life cycle basis looking at operation and support were quite close to what was provided very recently by the selected acquisition report.

I think that gives the budget office certainly a lot of comfort.

9:35 a.m.

NDP

Malcolm Allen NDP Welland, ON

I don't disagree, by the way, that the $25.1 billion reported to cabinet is what a reasonable—to use your term, Mr. Khan—person doing this would probably come up with. Unfortunately, that's not the number they told the Canadian public. They said it was less than $15 billion. The reality is that albeit we can give them credit for telling cabinet, we can't give them credit for not telling us and the general public that it was $10 billion less. That's what they communicated. They didn't really give us what information they knew; they gave us other information.

Mr. Page, I recognize you've done this as a career, I would assume as a cost analyst. In your experience, have you seen these programs ever go down in price?

9:35 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

No. Actually, sir, that's one of the reasons that when we looked at different models and we looked at the experience of the F-35 when we took on this project, we thought a cost-estimating relation of the kind of project that picks up these escalating costs....

There's a chart we have—I know you can't see it, but it's in our report—that looks at 30 or 40 years' worth of history. When you look at the cost of this type of technology, these sorts of systems, on a per-kilogram basis it's been growing exponentially, certainly 3.5%, or actually in the 4% range when you add in the weight itself. The costs have been going up.

9:35 a.m.

NDP

The Chair NDP David Christopherson

The time has expired, Mr. Allen. Thank you, sir.

Over to Mr. Dreeshen, who now has the floor.

9:35 a.m.

Conservative

Earl Dreeshen Conservative Red Deer, AB

Thank you very much, Mr. Chair.

I'd like to give my time to Mr. Alexander.

9:35 a.m.

NDP

The Chair NDP David Christopherson

Mr. Alexander, you have the floor, sir.

9:35 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

Thank you, Chair.

Mr. Page, do you know the low-rate, initial production period, per-aircraft price of the variant of the F-35 that Canada may be acquiring?

9:35 a.m.

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

Sahir Khan

Which LRIP batch are you referring to, sir?

9:35 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

Do you know which model Canada intends to buy?

9:35 a.m.

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

Sahir Khan

The F-35A, sir. But which LRIP batch are you referring to?

9:35 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

It's conventionally known in the trade as the LRIP, the low rate of initial production period per-aircraft cost. Do you know what it is?

9:35 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, we would need to be told working assumptions and when we expect the delivery to be.

9:35 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

So you don't know what it is.

9:35 a.m.

Parliamentary Budget Officer, Library of Parliament

Kevin Page

Sir, we have used assumptions, which we highlighted in our report. If we were asked to do an additional report, we would need an update on what the expectations—

9:35 a.m.

Conservative

Chris Alexander Conservative Ajax—Pickering, ON

But am I clear in understanding that you don't know what it is?