National Defence Committee on March 1st, 2007

[Sheila Fraser]

We have not decided whether we are going to audit that contract, but we are going to conduct an audit of various DND acquisitions. We have not decided exactly which item we will look at.

[Claude Bachand, Bloc, Saint-Jean, QC]

Can you opt to look at every item? After all, we are talking about $3.4 billion for strategic aircraft, $4.9 billion for tactical aircraft, $4.7 billion for the Chinooks, $3.4 billion for ships and $1 billion for trucks. Do you do that automatically? Do you have to be asked? How do you decide what to audit?

[Sheila Fraser]

We plan to conduct a number of audits of major acquisitions, but we do not automatically examine all acquisitions. We will assess the risks and determine which one, in our opinion, is the greatest. We will then conduct an audit. It must be understood that we begin our audit when the acquisition is made, when a contract is awarded, and obviously, it takes some time to perform our work.

[Claude Bachand, Bloc, Saint-Jean, QC]

I would also like to come back to the question of machinery, as you said. We note a lack of accountability on the part of the departments. They all keep passing the buck. We also note that, at each step, the government can select the aircraft it wants to have—or the service it wants—by imposing limits or requirements, for instance.

I will give you some examples. The government can say that it wants a plane that will lift 70,000 kg, knowing full well that there is only one plane capable of that. The company that sees this knows it will be awarded the contract, and this has an impact on Canadian taxpayers. I feel this means losing some of our bargaining power with that company. I do not understand why you cannot look at the machinery and make recommendations. I am referring only to DND requirements, but there are other stages. There is also Public Works and Government Services. I am pleased to hear you say that the advance contract award notice procedure is not competitive. There are other ways to proceed. We wonder what influence parliamentarians have and what influence the Auditor General could have.

Are you willing to look more closely at the machinery, given the magnitude of these expenditures?

[Sheila Fraser]

Mr. Chair, when I mentioned machinery, I was referring to how the government organizes itself. Should it leave the responsibility of awarding contracts to Public Works and Government Services, or should it create another agency? That it what I meant by machinery.

However, regardless of how the government organizes itself, we audit the process to see if it is too long, and if it is fair and transparent. There are principles. We maintain that the process must be open, transparent and fair.

We will examine whether those goals have been attained. If a contract is sole-sourced, we will look into the reasoning, to see whether it is legitimate and whether that decision can really be justified.

However, as I mentioned earlier, I am not really sure that we can audit the specifications. Military personnel spend hours and hours on them. We see the procedure they followed to determine the specifications, if there is an underlying foundation, but since we are not experts, we cannot call that into question.

[The Chair, Conservative, Rick Casson]

Thank you.

Ms. Black.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

Thank you, Mr. Chair.

Welcome to each of you. I appreciate you taking the time to be here with us.

There's an issue I've been trying to get a response on and an answer to. On the C-17s, the government used a national security exemption. What that does is remove the process from the agreement on internal trade in Canada. I've asked this question to each of the ministers who has appeared before the committee, and each of them said they weren't responsible for that decision being made. I've been really puzzled by that.

I wondered what your office's understanding is of that process. Is that something you would look at if you were to undertake a review or an audit of the whole C-17 contract, along with the impression that most of us are left with—certainly on the opposition side of this committee—of the appearance, at any rate, of a sole-source contract?

[Sheila Fraser]

As I mentioned, Mr. Chair, we haven't looked at the C-17s, so I really can't comment on that issue. Were we to look at them, we would obviously look at the rationale behind the decision to see why that exemption was invoked and whether or not there was a business case that would support it. So, yes, we would look at that issue if we were to audit the C-17s.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

And is it appropriate for this committee to make a recommendation that you do audit that? How does the Office of the Auditor General work in terms of determining what contracts you would examine?

[Sheila Fraser]

We obviously take very seriously any recommendations or any requests for audits from committees. Were the committee to request that, we would seriously consider it. We are not required to carry it out under our legislation, but obviously we work for parliamentarians.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

How do you determine which contracts in government you would audit?

[Sheila Fraser]

We go through quite a long process of risk analysis, getting a variety of information on the various purchases that are about to be taken and how they are being conducted—a kind of overview of them—and then we try to target the ones that we believe are of the highest risk.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

Thanks. It sounds like there's almost a formula that's in place, or criteria.

[Sheila Fraser]

There is quite a formal process, yes, that goes into the selection of all of our audits.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

In terms of ministerial accountability, again getting back to the issue of a decision being made around the national security exemption, you should have been here to hear some of the testimony earlier. There have been times at committee when I have asked a question of one minister in terms of the accountability for decisions that were made around defence procurement, only to be told it was not under them as minister of their department, it was under the minister of another department. Then, when I asked the same question of another minister, that second minister has said I should have asked that of the minister who was here last week.

It just seems there is not one final minister who holds accountability for the whole process. I'm wondering what you think of that, and what you think the role of ministerial accountability is in the whole issue of defence procurement.

[Sheila Fraser]

It's not something we've specifically looked at. There are many players in these defence procurements because of the complexity and the size of the procurements, and there are various roles that they play.

In many ways, it almost becomes a cabinet responsibility. You have to consider, obviously, that National Defence decides on the specifications. Public Works then manages the contracting process. You have the Treasury Board Secretariat involved. You would also have the Department of Industry, and you could have other departments that will play their roles as well.

So I think it's really up to those ministers, perhaps, to decide who will speak on behalf of the whole, but I'm not sure. Anyway, it is very complex. I would say that.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

No kidding. But in terms of all of us on this committee trying to do our job as parliamentarians, we can't call the whole cabinet in here. They don't come as one entity that holds the accountability of which you spoke. It is therefore very frustrating, as members of the committee, to try to determine just where that final accountability lies in the whole issue of civilian oversight for the decisions that are being made.

The government now has plans to spend some $20 billion on procurements. That's one heck of a lot of money. I'm comforted that you say your office is a sort of watchdog over this process, so I want to ask you how long it would take. We're in the middle of this C-17 contract. If your department were to make a decision to do an audit of that, when would that decision take place, or when would the audit start?

[Sheila Fraser]

We have a planning session in June, so we will be determining our audits for the next three years then. That would likely be about the timeframe, because we'll be starting that audit on the contracting, on defence procurement, at the end of this year.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

How long would that audit process normally take before your report came out?

[Sheila Fraser]

It takes anywhere from twelve to eighteen months.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

Thanks very much.

[The Chair, Conservative, Rick Casson]

I just have one question before we go on.

Do you have to wait until a procurement project is completed before you can look at it? Can you look at it while it's in process? What's the usual...?

[Sheila Fraser]

We can look at it when it is in process. For example, there was the modernization of the CF-18s. But there has to be a decision and there has to be a procurement. We can't look at something when it's only in the design stage or when the specifications are being developed. There has to have been a procurement.

[The Chair, Conservative, Rick Casson]

Good. Thank you.

Mrs. Gallant, for seven minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mrs. Fraser, for being with us here today.

My concern today relates to an issue that we discussed in this committee when you appeared back in the 38th Parliament. Whenever there's a large expenditure of taxpayers' dollars, there's always the concern about fraud. The fraud involving the accused Paul Champagne, Hewlett-Packard, and DND is alleged to have been one of the largest frauds in the history of the federal government, and bigger than the sponsorship scandal. It has been stated in the media that perhaps it was with an eye toward future contracts that Hewlett-Packard made good on the missing millions.

Your comment last time in the committee was that the government did recoup its lost millions and it was more or less the end of the story and you weren't concerned any more. With this media observation in mind—the potential for padding future contracts—would your audit be able to determine whether contracts are being padded or sole-sourced when the policy is competitive bidding?