Public Accounts Committee on May 1st, 2017

[David Christopherson, NDP, Hamilton Centre, ON]

If there's any time left, could I ask the Auditor General to comment on what he's just heard?

[The Chair, Conservative, Kevin Sorenson]

Mr. Stock or Mr. Ferguson.

[Gordon Stock, Principal, Office of the Auditor General of Canada]

The only other thing I would add is that at the time those submarines were purchased, which is a considerable period of time ago, there wasn't a lot known as to how much it would cost. At the time the $35 million was put forward, it was based on an absence of information. As well, we were told that they had to build supply chains to be able to have the parts to do the in-depth maintenance that was needed and to develop the procedures.

We understood that it's not entirely apples to apples, but at the same time it's an absence of information to more information.

[The Chair, Conservative, Kevin Sorenson]

Again, a lack of data, perhaps.

Mr. McColeman, please.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you, Mr. Chair.

I will refer to the Auditor General's Report 7, Operating and Maintenance Support for Military Equipment, National Defence, but before I go there, I want to go back to Mr. Forster.

Sir, I owned a small contracting company. There's a simple way to track your costs. You said it's very difficult and complex to track actual cost and allocate it to something. In my era, being the dinosaur that I am, it was called time sheets. Every one of my employees filled them out—two hours spent replacing the toilet; three hours spent doing trim work to the door. Then those were brought back to the office, and we input them into our database of the costing for that job to know at the end of the job what we had spent against how we had costed the job, and whether we had made money or lost money on that job. That was in the days before a lot of sophistication.

I watch people doing work for me these days. The plumber or the carpenter brings one of these in. There's a program. They mark in the number of hours they do on a particular project. Some of these companies have codes for the type of work it is. It goes into a database. It gets funnelled through an electronic system. There's no more transcribing in the office; it saves staff inside transcribing into the costing file, the paper hard copy. I believe this is how it's done today, although I haven't been in the business since 1996.

That said, why is it so complicated?

[John Forster]

That's a completely understandable, good way to look at it.

Now, that's for doing repair work on your piece of equipment. For us, to do life-cycle costs, it's not just the repair work. We do track repair costs, but when we get into the full life-cycle costs, it means the operation of that piece of equipment. In Vice-Admiral Lloyd's case, I have a major ship; it's going to have 100 different systems—weapons, technology, computers, propulsion, engines. For me to track the full life-cycle cost, I have to track the operating costs of 100 different systems on that ship. If I have five sailors running that ship, how do we attribute the cost to the engine, to the weapons system, to the radar system, etc?

In terms of repair and maintenance and support, that part, as I said in my remarks, is probably easier for us to do. The harder part is how to track the operating cost and attribute it to specific pieces of equipment or a specific system on a ship, for example.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I'll tell you how you do it. In this modern world of computers, you have a category for everything right down to replacing the screw that came loose on that hinge. In today's modern technology, sir, it is possible, and if you have a category where you cannot define it, you have the category called “undefined”. You put it in that category, and you ask the person who's executing to describe what it is they did, because they cannot find a category for it.

I'm illustrating for you the fact that in a modern database tracking system, a cost tracking system.... We're not talking here about estimating what the costs will be. We're not talking about that.

[John Forster]

No, no, I understand.

[Phil McColeman, Conservative, Brantford—Brant, ON]

We're talking about what you said earlier, that it gets very complex and difficult. I would ask you to explore the types of databases available to do that.

As we move on, though, I do want to ask you in relation to the report, particularly the operating and support of the military costs, how do you define life-cycle costs? What is included in life-cycle costs, and what is excluded, and over how many years do you determine life-cycle costs?

[BGen Werner Liedtke]

The life-cycle cost estimate is basically looking at it from cradle to grave. There are really five phases. There is the development work to determine what you need on the asset; the acquisition itself of the asset; the sustainment cost, which is the maintenance side; the operating of the asset itself; and then the disposal of the asset. Those are the five components of the life-cycle cost.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you.

[John Forster]

Just on the point of how long you do that will depend on the asset. On the surface combatants, when we do life-cycle costing, it's going to have to be 50-plus years, depending on how long we're going to use those ships.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Forster.

Madame Mendès.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you very much, Mr. Chair.

I am going to share my speaking time with my colleague Mr. Fragiskatos.

My questions concern data collection and processing. I would like to put my questions to Mr. Stock, if I may.

Following the study you did for this report, do you think that the new central data processing system, the Defence Resource Management Information System, or DRMIS, is the answer to all of the challenges faced over the past years by National Defence in managing data calculations regarding the cost and life span of equipment?

I should say that this is a problem we see everywhere in government. The whole issue of data management is indeed very complex; I understand that. However, how can we be sure that you now have the system you need? Were you reassured by what you saw?

[Gordon Stock]

Thank you for the question.

The best way to look at this is through the different parts of the defence resource management information system, some relate to personnel costs, some relate to inventory costs, all the way through. Within the planning side of it, when you're trying to do that life-cycle costing at the beginning, at the planning stage, you need to know how the equipment's going to be used, the planned use of the equipment. You need to know the personnel, how many personnel you're going to need, parts, everything to do with that. So, yes, that is very complex.

That full life-cycle costing, as the equipment is used, provides you with more information, and that should be updated. That's really where we were looking within the report as far as using that life-cycle information on an equipment basis. You would track it for the major pieces of equipment, so that you would know whether or not they are actually performing as expected.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Do you think that National Defence now has the system to allow it to do that?

[Gordon Stock]

The current system is still in a state of development, because it is not integrated in the same way. In terms of the human resource side, along with the planned use, one of the difficulties is that if the equipment is not used the way it was planned to begin with, then you're left with contracts that were set up to use it in a different way. You end up not having the value for money that you were looking for, or you have not had the equipment in place to do the training, so then it is not used as much from that side. It takes about five different areas that need to be continually worked on, put together, and integrated. I believe that it is looking—

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

A work in progress.

[Gordon Stock]

It's a work in progress. It is looking as though there is going to be progress, but we still have to see that.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you very much.

I will share the rest of my speaking time with my colleague.

[The Chair, Conservative, Kevin Sorenson]

Mr. Fragiskatos.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much, Mr. Chair.

My question is for Mr. Ferguson. In 2011, your office's report "Maintaining and Repairing Military Equipment " stated there was a lack of cost and performance information as well as a significant gap between the demand for maintenance and repair services and the funds available.

To your 2016 report, paragraph 3 of your outline here today says that National Defence made some initial planning assumptions that underestimated support costs, overestimated equipment use, and under-resourced personnel requirements. Back to point 6, National Defence did not have enough trained pilots, technicians, weapon system managers, and contracting staff to carry out maintenance work for new equipment.

With all that in mind, my question comes from the perspective of not only me as a member of Parliament, but also on behalf of constituents and taxpayers. These are, from an outsider's perspective and with hindsight in mind, simple mistakes that shouldn't have been made. But why are they made, not only with respect to what has happened in National Defence, but as I know this committee has heard before, with respect to other departments?

I know your office has written a number of reports over the years that outline mistakes that are made that led to the ineffective and inefficient use of funds. Again, from a taxpayer's perspective, these mistakes shouldn't be made, but all too often they are. What are some potential patterns that you've identified throughout all this? Is it the complexity inherent in this sort of work in terms of purchasing, a lack of communication, silos within departments, for instance? What sorts of patterns could you point to?

[Michael Ferguson]

I think, perhaps, what I want to start with is just the why life-cycle costing, for example, is important. When you're dealing with this type of equipment, and we've heard about the complexity, we've heard about how much the equipment costs, how long the equipment's going to last, how many people are needed to support it, how many people are needed to operate it, all of the costs, fuel and other things that go into operating it, maintaining inventories, it's extremely complex. So whenever a significant piece of equipment is being purchased, that significant piece of equipment can have a significant impact on the budget of the department for many years to come.

The idea about life-cycle costing isn't about trying to tell departments they need to be able to figure out how much a replacement bolt is going to cost 25 years from now. It's about telling departments that they need to make sure they're doing a good job of understanding, when they buy a piece of equipment, what the impact of that will be going forward.

I think here, one of the things that we particularly identified—and I think this is a common issue in other large projects—goes back to the assumptions. One of the assumptions that we highlighted and has been talked about today a number of times is the assumption that the cost to maintain and support the new equipment would be no more than the cost to maintain and support the old equipment.

At the time, and I think one of the things that bothers me a bit about today is that the people who made the decisions and the people who made the responses to us in 2011 are not the people who are here today who are having to try to defend why the department said they would get some of these things fixed by now and they haven't gotten them fixed.

When you go back to some of these decisions, that the support cost for new equipment would be the same or less than the previous equipment—and I think I said it in my opening statement—that just was not a realistic assumption. It's important for these assumptions to be realistic so that the departments understand, when they're buying a significantly complex piece of equipment, that it may significantly change how many people you have supporting it, how many technicians there need to be, what the operations are even in terms of military personnel for the new pieces of equipment, because it's going to be different. Starting with an assumption, for example, that it's not going to be different, quite frankly, isn't a realistic assumption.

I think two things to draw from this are the importance of life-cycle costing, not down to the nuts-and-bolts issue but from the point of view of how it will impact long term, and in what pattern, the budget of the department; and the importance of having good planning assumptions that are realistic, to help you understand what that impact is going to be.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Ferguson.

Mr. Christopherson.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Mr. Chair.

I very much appreciate, Mr. Ferguson, those last few remarks because anybody who is watching this—and I know there are people who follow these kinds of matters carefully—would recall we went to where this became a cause célèbre in the recent past on the F-35. It was a huge factor, billions of dollars. It would seem that we're getting closer, but we're still not there. We seem to be getting closer.

I'll turn to page 16, paragraph 7.59:

In certain cases, the contracts reflected a reduced number of flying hours or a start-up period before reaching the expected steady state. We found that actual usage was below original expectations due to a lack of personnel and funding for operations and maintenance. In the 2015–16 fiscal year, actual equipment usages compared with their expected steady states for the CC-130J Hercules aircraft, Globemaster aircraft, and Chinook helicopter were 62 percent, 80 percent, and 39 percent, respectively.

Common sense dictates that, if you don't use it as much, you're not going to achieve the savings. Somebody talk to me about this. I understand there are a lot of things connected with that, budget cuts and that. Is there not some mechanism that...? For instance, does the minister know when they make a decision to reduce personnel or funding? Are these kinds of things brought to them? This has a domino effect down the road. That's what I'm trying to get at. I'm trying to understand how things could be so far off, but also, is this connected to other decisions that have an impact on it?