Evidence of meeting #33 for Public Accounts in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was ships.
A video is available from Parliament.
11:45 a.m.
Conservative
The Chair Conservative Kelly Block
Thank you very much.
We will now go to Mr. Green for six minutes.
Mr. Green, you are muted.
11:45 a.m.
NDP
Matthew Green NDP Hamilton Centre, ON
It must have been the long weekend here. That's typical—par for the course. I probably owe some kind of fee to the committee for that, this far into COVID.
To pivot and get a little more serious, on section 2.34, it was noted again:
that schedules were...not an effective tool to manage projects’ timeliness. For several projects, government officials were not satisfied with the schedules they received. They considered the schedules to be incomplete, partly because the schedules were too general and underestimated the time needed to accomplish the different tasks. They...considered them to not be provided in a timely manner. For example, in the case of the Canadian surface combatant, it took more than 6 months after the start of the design phase for the government to obtain a design schedule that was sufficiently detailed to accurately track progress.
My question is for the assistant AG, Ms. Thomas. How did your department account for the delays and the potential costings of these delays?
11:45 a.m.
Assistant Auditor General, Office of the Auditor General
As you've indicated, we found that there was a need to obtain complete, current and reliable schedules, and that those schedules be monitored. We looked at what the departments provided to us in terms of the amounts of time it was going to take and the delays that were relevant to each of those ships.
In terms of the cost, our focus was not on the cost that was incurred as a result of these delays. We felt that focusing in on one of the main components of the objectives of the strategy to produce timely ships to replace and renew the fleet was where we were putting our efforts.
11:50 a.m.
NDP
Matthew Green NDP Hamilton Centre, ON
On page 9, exhibit 2.3, you have a section on cost increases, and it's noted, “In 2019, National Defence estimated that design costs for the Canadian surface combatant would increase by $111 million because of delays.”
In your audit, when the Department of National Defence gives you that figure, do they also disclose what would be included in that figure in terms of the estimate for the cost of delays?
11:50 a.m.
Assistant Auditor General, Office of the Auditor General
I'm going to start that answer, then I'm going to pass it over to Mr. Swales to see if he has anything to add.
When we carry out our audit work, obviously we need to obtain sufficient and appropriate evidence to make sure we have the information we need. With respect to the $111 million in delays, this was the information that the department provided to us. We also knew that the Parliamentary Budget Officer was carrying out work in this area as well; therefore, we didn't go any further in terms of carrying out work on costs.
I'm going to pass it over to Mr. Swales to see if he has anything to add on the $111 million.
11:50 a.m.
Nicholas Swales Principal, Office of the Auditor General
Thank you, Madam Chair.
I don't really have anything to add. This was an illustrative example and was the situation at the time.
11:50 a.m.
NDP
Matthew Green NDP Hamilton Centre, ON
That's okay. If you don't have anything to add, I would like to ask.... I understand that the Parliamentary Budget Officer is also carrying out parallel studies on the costing. You will note—and it's been publicly noted—that there's a pretty significant difference between what the PBO says this program is going to cost and what the Department of National Defence has stated will be its overall cost. I'll note you have stated that at the time of your audit the first Canadian surface combatant for the Royal Canadian Navy was not expected to be delivered until at least 2030, but very preliminary schedules show the last ship being delivered in 2047.
When you're doing your risk analysis as the Office of the Auditor General, how do you account for, in the risk management scenarios, these types of delays as being a potential for a red flag?
11:50 a.m.
Assistant Auditor General, Office of the Auditor General
That was our interest in looking at risks to determine whether or not the department was assessing, mitigating and monitoring the risks they faced, with respect to delays in particular. Our perspective and one of our focuses was on delays, because a strong assumption could be made that if you are focusing in on the timeliness of shipbuilding, then the management of cost should also follow.
11:50 a.m.
NDP
Matthew Green NDP Hamilton Centre, ON
In unpacking that in a very general way, through you, Madam Chair, to the assistant AG, would you include provincial tax in those costings? There have been some pretty significant variations between department estimates and the PBO. As the Auditor General's department, when you're looking at a risk analysis, would you include the total cost inclusive of provincial taxes, or would you just take a suggested retail price?
11:50 a.m.
Assistant Auditor General, Office of the Auditor General
As we mentioned, the focus of the audit was on the timing of the audit. I will ask Mr. Swales if we looked at any of the details of the costing from that perspective, but I suspect that our—
11:50 a.m.
NDP
Matthew Green NDP Hamilton Centre, ON
I can ask it more generally speaking, through you, Madam Chair, back to Ms. Thomas.
When you're doing cost analysis in other department procurement processes, do you include provincial tax?
11:50 a.m.
Assistant Auditor General, Office of the Auditor General
We would look at the overall cost of a particular contract to determine which elements are relevant to be looking at for the federal government and to be able to report on and conclude on the federal aspects of those costs.
11:50 a.m.
NDP
Matthew Green NDP Hamilton Centre, ON
Just for clarity, that would be inclusive of provincial tax. Is that right?
11:50 a.m.
Assistant Auditor General, Office of the Auditor General
The cost provided by the government would most likely include the costs, but we would not be in a position to weigh in on the relevance and the appropriateness of those provincial taxes.
11:50 a.m.
Conservative
The Chair Conservative Kelly Block
Thank you very much, Mr. Green.
Colleagues, we will now go to our second round of questioning, starting with Mr. Monsieur Paul-Hus for five minutes.
May 25th, 2021 / 11:50 a.m.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Thank you, Madam Chair.
I'll start by picking up from where my Bloc Québécois colleague left off with regard to the leader of the national shipbuilding strategy. At this time, we're like headless chickens. It seems that no one is taking responsibility. Can someone tell me who is in charge?
I can see that no one wants to say anything.
Is the reason for this failure the lack of a structure and the fact that, when one department decides to move in one direction, the other department doesn't follow?
I want to talk about defence with Jody Thomas. We currently have the combat ship contract, which is huge. The parliamentary budget officer's cost estimate was $27 billion at first, and now it's about $100 billion. This contract includes different classes of vessels, including the European multi-purpose frigates, or FREMMs, and the type 26 ships. Choices must be made.
Ms. Thomas, with respect to the naval strategy, does anyone decide the direction to take? In the Department of National Defence, do you have the choice to do what you want? How does this work?
11:55 a.m.
Deputy Minister, Department of National Defence
Thank you, sir.
The governance of the national shipbuilding strategy is now quite well developed and is led by PSPC. Yes, the Department of National Defence is responsible for the program at Irving Shipbuilding, led by the ADM of materiel, Troy Crosby.
If you're asking who's accountable for the navy and its program, it is us in the Department of National Defence. We make the decisions on what will be built; we work with our partners and we are accountable for the cost of that project and that series of projects.
11:55 a.m.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Okay.
The division is made and it's clear, given the vessels. Irving Shipbuilding Inc. is working with the Department of National Defence, while Seaspan is working with the Department of Fisheries and Oceans.
Two years ago, I believe, the contract to build a sixth Arctic and offshore patrol ship, or AOPS, was given to Irving. The original contract was for five ships. A sixth ship was added at twice the price. This means that Irving is being paid $800 million instead of $400 million. The surplus was used to give money to Irving, because its managers said that there was an issue and that the company couldn't lose employees.
In this situation, is the Department of National Defence responsible for managing the Irving Shipbuilding Inc. issue or is another department responsible for doing so? Should the Department of National Defence cover the additional costs resulting from a company's issues and include them in its budget?
My question is for Jody Thomas.
11:55 a.m.
Deputy Minister, Department of National Defence
Yes, you're quite correct. There are two Coast Guard vessels that are going to be built at the Irving shipyard. There are also two navy ships that are being built at Seaspan.
The governance of the program means that we work with PSPC, ISED, and DFO Coast Guard in order to come to recommendations to make on the best use of the yards.
11:55 a.m.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
That does not answer my question, but I will ask another one, as I don't have much time left.
I will now turn to Mr. Sargent, from Fisheries and Oceans Canada.
For a number of years, Seaspan had the polar icebreaker contract. The government then decided to rescind the contract with Seaspan, but it just decided to award it again. Was it because Seaspan had an exclusive right to the icebreaker contract? Was there not a way to use another company?
Given that Seaspan has been unable to build the icebreaker in all these years, why should we trust that company now?
11:55 a.m.
Deputy Minister, Department of Fisheries and Oceans
It's important to look at the whole program of work of the Coast Guard. When the polar icebreaker was removed from the program of work, at the same time we added in 16 multi-purpose vessels, because that was a key priority for us.
Fast forward to two years later, when the government was making decisions about the two polar icebreakers that the Canadian Coast Guard needs. We determined that the best way forward would be to have one at one shipyard and one at the other shipyard. Therefore, it's in the context of the broader Coast Guard program of work.
11:55 a.m.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Why was Seaspan unable to do it? The company had the contract rescinded in 2019, and now it is being awarded the contract again. Why would it be able to build the vessel now when it has been unable to do so for nearly eight years?
11:55 a.m.
Deputy Minister, Department of Fisheries and Oceans
It wasn't necessarily that they weren't capable of doing it two years ago. The questions were, what was our priority, what did we want to build first and what was the best place to do it? We needed to get moving with the multi-purpose vessels while a procurement decision was being made on the two polar icebreakers.