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Evidence of meeting #40 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 f-35.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Michael Ferguson  Auditor General of Canada, Office of the Auditor General of Canada
John Reed  Principal, Office of the Auditor General of Canada
Jerome Berthelette  Assistant Auditor General, Office of the Auditor General of Canada

8:45 a.m.

NDP

The Chair NDP David Christopherson

I now declare this 40th meeting of the Standing Committee on Public Accounts in order.

Colleagues, we're joined today by a few guests. Mr. Chris Alexander is the Parliamentary Secretary to the Minister of National Defence. Mr. Matthew Kellway is the critic for the official opposition for military procurement.

I had an opportunity to serve with both of them on the defence committee. It was an excellent experience, I might say, and I welcome both to the committee today.

Mr. Laurie Hawn, of course, joins us also. Welcome, sir.

Other than that we have the usual roundup of suspects.

8:45 a.m.

Liberal

Gerry Byrne Liberal Humber—St. Barbe—Baie Verte, NL

We have an unusual suspect here, Mr. Chair. Mr. Alexander's here with us, too.

8:45 a.m.

An hon. member

He just introduced him.

8:45 a.m.

NDP

The Chair NDP David Christopherson

I just mentioned him.

8:45 a.m.

Liberal

Gerry Byrne Liberal Humber—St. Barbe—Baie Verte, NL

Oh, I'm sorry. I missed that. I was busy conversing.

8:45 a.m.

NDP

The Chair NDP David Christopherson

Today's proceedings are fairly straightforward. In a moment I will call on the Auditor General to present his opening remarks and formally present to the committee chapter 2, “Replacing Canada's Fighter Jets”, from his spring 2012 report. Following Mr. Ferguson's opening remarks and his introduction of his delegation, I will open up the floor for questions. We will follow the usual rotation as set out by our policies at the beginning of this Parliament.

Are there any concerns, questions, or comments about proceeding in that fashion? Hearing none, we will proceed to get under way.

Welcome, Mr. Ferguson. We appreciate your coming, especially on such short notice. I know you had to do some major gymnastics with your schedule in order to be here. We very much appreciate the priority you're giving to this committee, in terms of ensuring you're able to support us in our work of supporting you.

With that, Mr. Ferguson, please introduce your delegation and immediately move to your opening remarks.

8:45 a.m.

Michael Ferguson Auditor General of Canada, Office of the Auditor General of Canada

Thank you and good morning, Mr. Chair.

I am pleased to be here to discuss chapter 2 of our spring report. I am accompanied by Assistant Auditor General Jerome Berthelette; and John Reed, principal. These two were responsible for this audit.

This audit dealt with two aspects of Canada's longstanding efforts to replace the fleet of CF-18s. First, the audit examined how federal departments managed participation in the U.S.-led international joint strike fighter program. Second, the audit examined how departments managed the process leading to the decision to purchase the F-35 jets.

Owing to the unique nature of Canada's participation in the Joint Strike Fighter program, we examined whether departments exercised due diligence in managing their respective responsibilities. We looked at whether they had conducted appropriate analysis, clearly defined roles and responsibilities, undertaken sufficient consultation, provided oversight and obtained approvals.

We did not audit the merits of the F-35 aircraft. We found that National Defence and Industry Canada did a good job of managing Canada's participation in the US-led Joint Strike Fighter, or JSF, program to design and develop the F-35 aircraft. For example, we found their early efforts to secure benefits for Canadian companies were significant and successful.

However, the audit identified a number of weaknesses with respect to how departments managed the decision-making process to replace the CF-18s. As described in the chapter, by the end of 2006, the procurement of the F-35s was effectively in motion. Failure to recognize this fact contributed to three key weaknesses discussed in the chapter.

First, several of the usual steps associated with procurement were taken out of sequence, and important documents were prepared out of sequence, rendering them of little consequence. Key decisions were not always supported by adequate analysis or documentation, and did not receive required approvals. Public Works and Government Services Canada was not engaged in its role as the government’s procurement authority until late in the process, and it endorsed the decision to sole-source the acquisition of the F-35 jets without required documentation or completed analysis.

Second, risks identified by National Defence did not reflect the problems being experienced by the U.S.-led joint strike fighter program. National Defence has been overly confident about risk-mitigation strategies.

Third, National Defence has understated and underestimated the full life cycle costs associated with acquiring and sustaining the F-35 aircraft by calculating the costs on a 20-year basis and omitting some important cost elements. The department did not take the opportunity to provide Parliament with complete cost information when it responded to the Parliamentary Budget Officer's report.

In short, neither National Defence nor Public Works and Government Services Canada exercised the diligence that would be expected in managing a $25-billion acquisition. National Defence, Industry Canada, and Public Works and Government Services Canada have accepted the facts presented in the chapter. Going forward, it is important that the process to replace Canada's CF-18 fleet reflect principles of due diligence, scrutiny, rigour and transparency.

Mr. Chair, other than saying that from time to time I may have to confirm things with the two officials I have with me or that I may ask one or the other to respond to questions, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.

Thank you.

8:50 a.m.

NDP

The Chair NDP David Christopherson

Excellent. Thank you again, Mr. Ferguson.

Colleagues, you now formally have before you chapter 2 of the spring 2012 report of the Auditor General of Canada.

In proper rotation, beginning with Mr. Saxton, we will begin questions and comments for Mr. Ferguson and his delegation.

Mr. Saxton, you now have the floor, sir.

April 26th, 2012 / 8:55 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you, Mr. Chair. And thank you, Auditor General, for coming today and for bringing your assistants along as well.

First off, I'd like to ask the Auditor General if he could please confirm that not a single aircraft has been purchased to date and that his audit is simply of the process to date.

8:55 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

Michael Ferguson

The audit was of the process up to the date stated in the chapter. Certainly, as of the time of the audit, no jets had been purchased.

8:55 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you.

Mr. Ferguson, I know that you have had considerable experience and success in your previous field, prior to becoming the Auditor General of Canada. Can you advise the committee, then, whether it is standard auditing practice to conduct performance audits on a procurement that has yet to take place?

I know that you made some reference to this in your April 5 appearance before committee, but I was hoping that you could perhaps just expand on the uniqueness of this particular audit.

8:55 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

Michael Ferguson

Thank you.

This was an audit that looked at the process up to this point in time. The decision was made on the basis that enough of the process had happened that an audit was able to be done. This was an important type of purchase, a significant amount of money, and therefore, the decision was made to do an audit at this point in time.

Certainly, in audit practices, there are audits that are done after the fact. There are also audits done during the process. In fact, there are some audits, referred to as “real-time audits”, that go along as something is occurring.

Because of the size and the importance of this particular purchase, it was decided that this was the appropriate time to do an audit.

8:55 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you, Mr. Ferguson.

Can you explain the difficulties that you and your team may have encountered in auditing a developmental program such as this one being considered for the replacement of fighter aircraft, considering that nothing has been procured to date?

8:55 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

Michael Ferguson

Probably the primary concern, the main thing, that we had to deal with was that because this was a unique approach to purchasing the aircraft, we recognized that the normal rules would not necessarily apply. That's why what the audit was about was to determine whether the organizations applied due diligence, and we define due diligence in terms of the basic practices of good management.

What would have been helpful to us in conducting the audit would have been if the departments had recognized more fulsomely the uniqueness of this particular approach that they were using, and had agreed up front on what the different roles and responsibilities were going to be. But because those were not there, we had to do the audit on the basis of good management practices and due diligence.

8:55 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you.

Can you explain how the fact that there were international partners involved may have complicated the audit as well?

8:55 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

Michael Ferguson

I'm not sure that actually complicated the audit very much at all. The complication there was more in the fact that there were two pieces to the audit. One was that we were looking at Canada's participation in the U.S.-led joint strike fighter program. The other was that we were looking at the processes within Canada that were leading to the announcement of the intention to purchase. The involvement of other organizations really didn't complicate our audit. It was just part of what was going on in the joint strike fighter program.

8:55 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you.

Auditor General, there being some pretty creative interpretations of what your audit has concluded, I think it is vital for the committee to have a clear idea exactly what we're focusing on in this meeting. Could you please explain to us what, precisely, your one recommendation was?

9 a.m.

NDP

The Chair NDP David Christopherson

Very briefly, please, Mr. Ferguson, Mr. Saxton's time has almost expired.

9 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

Michael Ferguson

Mr. Chair, for the record, the recommendation is contained in paragraph 2.77. I could read it for the record, or the members could refer to it, whatever you wish.

9 a.m.

NDP

The Chair NDP David Christopherson

We're quite a bit over the time; we'll have to leave it at that right now. If Mr. Saxton wants one of his colleagues to pick up from there, they can do that.

Thank you very much, and thank you, Mr. Saxton.

Mr. Allen, you have the floor, sir.

9 a.m.

NDP

Malcolm Allen NDP Welland, ON

Thank you, Mr. Chair, and thank you, Mr. Ferguson, for being with us today.

Let me thank my colleagues on this side of the table for exerting pressure on the other side of the table to make sure that you came first, because it's appropriate that you speak first to the chapters, sir, that are under your purview, first and foremost, before we speak to anyone else.

We have certainly appreciated when you've been before us at other times, and we certainly appreciate you being here today with Mr. Reed, the principal of this chapter, and Mr. Berthelette, who is also helping out.

Let me ask the first question to you directly, sir. Do you know who in cabinet knew about the full life cycle cost? Do you actually know who those cabinet members would be?

9 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

9 a.m.

NDP

Malcolm Allen NDP Welland, ON

So you don't know any of the names of particular ministers. Whether you can tell us them or not, do you know whether the Minister of Defence knew about the full life cycle cost? When I say full life cycle cost, I'm talking about the one you identified of $25 billion.

9 a.m.

Auditor General of Canada, Office of the Auditor General of Canada

Michael Ferguson

We identified in the chapter that the budgets for the costing information were approved. That would have gone through the normal process. I don't have the information to tell you who, exactly, was at the table when that was done, but certainly that costing information did go through process and those budgets were approved, as we state in the chapter.

9 a.m.

NDP

Malcolm Allen NDP Welland, ON

So based on your information in the chapter, am I correct in stating that this information, because it was passed, would have been before the cabinet? For me, it's the particular departments involved, National Defence and Finance—they do budgets—and I would expect the Prime Minister would sign off on things like budget.

Is it fair to say that they would more than likely be the three individuals involved in at least that piece of authorization of $25 billion heading towards a budget? So that would be the Prime Minister, Minister of Finance Mr. Flaherty, and Minister of Defence Mr. MacKay.