Government Operations Committee on Sept. 23rd, 2025

[Karen Hogan]

I'm going to see if Nick will want to jump in on that. That's a bigger, broader question about having the military ready. This audit was really focused in on the transition between the CF-18s and the CF-35s.

I think we identified the need to make sure that estimates and costing use the most up-to-date information and that it's recognized that those need to be evergreen. Things keep going....

For many of the cost increases here, some are within control of the Department of National Defence and some are outside the control of the Department of National Defence, such as inflation, the global demand for munitions and foreign exchange. When a decision is made, those all have to be factored in up front.

However, it's not just about having equipment and infrastructure. It's making sure that you have the personnel to man them. We can have all 88 CF-35s, but we need trained pilots and we need trained technicians to maintain them so that in the long term we can have a strong fighter jet capability for the country.

National Defence has a lot of balls to manage. I think your question is best asked of them on how they plan to do that going forward.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Could you talk about the costing controls that are within the department's control? You said some are outside its control and some are within its control. What's within its control?

[Karen Hogan]

When it originally announced that Canada was moving to CF-35s, the estimate was that the project would cost $19 billion. In my view, what is in the control of the department is that this information was based on outdated information. There were already up-to-date cost estimates for what a fighter jet would cost. They hadn't been factored in.

They also didn't include in that project all of the elements needed to make sure that the planes could reach their full operational capability, meaning that they could be used as intended. Some of the things that were missing were power grid upgrades in some of the infrastructure that was essential, and also some of the advanced weaponry. You needed to have missiles on those fighter jets if you wanted to use them as intended, and they weren't there.

This is why we say the cost estimates now are at $27.7. billion. There are at least another $5.5 billion that should be added to that in order to look at the cost of fully transitioning from CF-18s to CF-35s.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

I haven't looked at the contracts, obviously. When these contracts are negotiated, I'm assuming from what you're saying that it's not a fixed price—like, if you want to buy one jet, this is the cost that it's going to be.

Is that usual practice for how these contracts are negotiated?

[Karen Hogan]

In this case, it isn't a contract. There's a memorandum of understanding with the United States. This is a nation-to-nation agreement. Canada is part of a group of allies that are purchasing CF-35s.

Canada's memorandum of understanding calls for 88 planes to be delivered to Canada. That's why Canada is part of the joint strike fighter program office. It's so they can keep on top of the cost and the latest upgrades that are needed in buildings and so on.

This is unique. It's not like entering into a contract to buy 88 cars; this is about having fighter planes that are compatible with those of our allies.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

I think it's obviously very dynamic in that sense, but how should the Royal Canadian Air Force then balance the operational needs and requirements they have with the budget and options that are available?

[Karen Hogan]

This is where we called for better transparency around the full costs of the project and more regular updates, and those were some of the recommendations we put in our report.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

We know it's also very important that Canada has fully operational main operating bases where the fighter jets can be stationed and where they can conduct day-to-day operations and training. Can you tell us anything about the upgrades or changes that will need to be made to existing operating bases as Canada procures the new fighter jets? You've talked about it very briefly.

[The Chair, Conservative, Kelly McCauley]

I'm sorry. We're past our time, but you can offer a brief answer.

[Karen Hogan]

Yes, I can offer a really brief answer.

What we've put in here about power upgrades and making sure the facilities are available is the extent to which we can talk about that. The rest of that is information we can't put in the public domain.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thank you, Mr. Gaheer.

We'll now go to Mr. Gill. Go ahead for five minutes, please.

[Harb Gill, Conservative, Windsor West, ON]

Thank you, Mr. Chair. Thanks for joining us, folks.

I'm going to talk about GC Strategies a bit. You said that in 21% of the contracts you examined, you found the federal organizations lacked documentation on file that showed valid security clearances for contract resources. The question I have is this: Did you find any evidence of citizens' personal or health information being compromised, or the possibility of that occurring?

[Karen Hogan]

Our finding really is flagging the risk that it could occur. When you don't have the right security clearances on file and you haven't checked that, there is a risk that personal information, government information or government assets could be exposed when they shouldn't be.

We did, however, look at some of the contracts. We didn't look at all of them in detail and we didn't find any breaches. Not having the information on file doesn't mean the person didn't have a security clearance; it means it wasn't there.

We also looked at this in ArriveCAN and didn't find breaches, but this is a risk. If you determined that a contractor should have security clearance, they should not be doing the work until they have that security clearance.

[Harb Gill, Conservative, Windsor West, ON]

That's true.

The next question I have, ma'am, is this: Canadians expect the federal organizations to have controls, processes and policies in place to support fair, open and transparent procurements and to promote value for money. As regular Canadians are asking, are we getting value for our money?

[Karen Hogan]

I'm always asked that question. At times that's a very easy answer to give, and at other times it's a more complex answer to give.

When we were looking at the contracts with GC Strategies, we saw that at times they were to provide advice or a report, and we saw those reports, but at other times there was no evidence as to what work was done. When we spoke with public servants, they told us that there had been a lot of work and they assured us that they had received value for money, but what was missing was the ability to demonstrate that to us.

That's why we've called for going back to basics here. It's not about creating more rules; it's about understanding the rules that are there, knowing why they should be implemented and then implementing them. Making sure the government received what they contracted for before authorizing payment is basic, and often we saw that this wasn't happening.

[Harb Gill, Conservative, Windsor West, ON]

Based on that, if the work was not completed and the payment was still made, has any department or agency tried to recover the money that was paid to GC Strategies for work that was not completed but for which payment was made?

[Karen Hogan]

I'm often asked this question as well.

The difficulty there is that one of the final steps a public servant should do is to certify, before saying to go ahead and make the payment, that the goods or services were received. We saw consistently that public servants were certifying that; what we were looking for was proof.

For example, 94% of the contracts we looked at required time sheets in order to demonstrate that a contractor had done work. We found that those were very rarely there. In almost 60% of the cases, there was little to no evidence of that. In fact, in one contract, there was only one contractor out of 25 who had a time sheet. That doesn't mean the work wasn't done; it means there's no ability to demonstrate to Canadians that you received value for money.

That's a big gap and a big hole that shouldn't be there. It's not as easy as saying that because you didn't have a time sheet, nothing was done, and you should go recover the money; it's about knowing whether or not the work was done.

[Harb Gill, Conservative, Windsor West, ON]

You note that you're not making any recommendations with this report, as you had already made them before, and you reconfirm that the policy should be well understood by now by these various agencies. I'm sensing a degree of exasperation on your part, because you go on to say that the procurement policies in place as of 2024 “promote fairness, transparency and value for Canadians—when they are followed.”

In that regard, what is the percentage of compliance to federal policies across the various departments and agencies? Second, who is the most compliant, and perhaps who is the least compliant?

[Karen Hogan]

I'm not sure I could give you that answer. I would have to point you to a few reports that we did. We did a report on professional services contracts that looked at work awarded to McKinsey. There was this work on contracts awarded to GC Strategies. This report had 31 federal entities in it. The other one had 20. In almost every case, there was something that was missing. This included federal Crown corporations, departments and agencies. That's why I think there is a need to take a step back and ask why this is happening. Are there too many procurement rules, so individuals just don't know them all and it's impossible to apply them all, or is it that they're working around them?

I think that that's what the government has to find out, which is why I didn't want to contribute to more rules. I think you have to go back to the basics.

[The Chair, Conservative, Kelly McCauley]

Thank you very much.

Mr. Sousa, welcome back to OGGO. You went a whole week without appearing here.

Go ahead, sir.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

It's a pleasure, Chair.

Thank you, Auditor General, for your report.

Believe us, we value the contributions you make in regard to all these reviews and recommendations and in highlighting some of the issues that we always need to be apprised of.

Let's start with GC Strategies. I know that PSPC had already implemented a host of changes. There's much that you have done and much that the ombudsman has done over the course of the last two years: improving the guidance of other government departments, putting caps on task-based contracts, mandatory value-for-money assessments for all RFPs with a time-based basis for payment, mandatory reporting by client departments for the usage of mandatory methods of supply, and ADM-level approval for non-competitive contract extensions and single-bid procurements.

Auditor General, does that demonstrate to you that other federal contractors should be mindful of the rules? You've made it clear that we don't need any more rules; we just need to abide by them. This happened during the pandemic period. What's happening now, relative to some of these issues?

[Karen Hogan]

I'm going to talk about two reports, the one on GC strategies and then the one on professional services with McKinsey.

Both of those reports went back in time. In this case, we looked at contracts from 2015 to 2024: prior to the pandemic, during the pandemic and postpandemic, if we're in a postpandemic time.

This is pervasive, and that's why to me it isn't just about what happened since you've changed the rules. All of the rules that were changed were changed following some of my work, so this is forward-looking. All I can tell you is that in the past, there was a rather pervasive lack of respect for rules, which is why going back to training and reinforcing what they are is the first step. It's not creating more rules.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

To be clear, your recommendations, the ombud's recommendations and some of the other reports and investigations that were provided have been adopted by government. We have taken, if I understand correctly, all of these things into action, recognizing some of the things that may have been amiss previously.

Was there any interference or engagement by elected officials in any of these contracts?

[Karen Hogan]

There was engagement in one contract, I do recall, with an elected official, but that was required by procurement rules because of the dollar value of the contract. Other than that, this is work done by the public service that we are looking at.

I would like to think that returning to the basics and re-educating people will help procurement going forward, but I do think that there are a lot of rules, and there is a need to decide whether streamlining them will bring better efficiency and better value for money.