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.