Public Accounts Committee on April 26th, 2012

[John Reed]

In paragraph 2.64, we make a specific reference to a letter that was received by National Defence from the Under Secretary of Defense for Acquisition, Technology and Logistics. So that was one example of correspondence between the Pentagon.

[Mathieu Ravignat, NDP, Pontiac, QC]

I am familiar with that example, but did you take a comprehensive look at all the correspondence?

[John Reed]

I would have to say that we looked at a lot of correspondence that was transferred between the U.S. joint program office and National Defence, but not specifically between the Pentagon and National Defence.

[Mathieu Ravignat, NDP, Pontiac, QC]

Did you request it?

[John Reed]

No. We didn't feel the need to request any correspondence.

[Mathieu Ravignat, NDP, Pontiac, QC]

Now I want to ask you about industrial benefits.

You said that the industrial benefits are based on assumptions. Can you confirm whether an open and transparent procurement process would guarantee that every dollar invested would yield a dollar in benefits?

[Michael Ferguson]

One of the unique aspects of this particular arrangement was the fact that for industrial benefits, companies from partner countries could participate in industrial benefits but would have to compete for those industrial benefits rather than being guaranteed industrial benefits—for example, on a dollar-for-dollar basis.

[Mathieu Ravignat, NDP, Pontiac, QC]

Very well. Thank you.

In light of the estimated cost of the F-35s, would you agree that these benefits would be greater than those referred to in your report?

[Michael Ferguson]

Thank you.

I'll ask Mr. Berthelette to answer the question.

[Jerome Berthelette, Assistant Auditor General, Office of the Auditor General of Canada]

Mr. Chair, we did not actually sit down and examine the difference that would apply if we used the industrial regional benefits policy versus what may result from the industrial participation under the F-35 program.

[The Chair, NDP, David Christopherson]

Time has expired.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you, Mr. Chair.

[The Chair, NDP, David Christopherson]

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

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

Thanks to the Auditor General and certainly to the staff who are with him.

I'm still concerned, and I think Canadians are concerned, with the discrepancy in costing. I alluded to it earlier, but the costing estimates provided by the Parliamentary Budget Officer and those that were provided by National Defence obviously were different. They have a dispute over those costs. What is the reason for the discrepancy in those costs, in your opinion?

[Michael Ferguson]

Thank you.

I think actually it would be better for the department or the Parliamentary Budget Office to respond to that question. I don't think I can specifically answer for either of them.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

That's fine, but in exhibit 2.6 of your report, you did provide a table that National Defence posted on its website comparing the PBO estimates of certain cost elements with their own estimates.

I'm wondering whether you sought any explanation from National Defence for the difference between those estimates.

[Michael Ferguson]

Certainly we did receive a copy of National Defence's comparison in which they arrived at the amount that's displayed in exhibit 2.6. We received their analysis of that, and of how they arrived at those numbers starting from the PBO's estimated numbers.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I want to be sure that we're dealing with apples and apples here. I say that because obviously the department used Canadian estimates, and of course, figures that would be applied to the Canadian procurement, while the PBO used the American figures that were obtained from the government accountability office in the United States, which is geared towards the American procurement. There are also, of course, significant developmental costs involved in the American procurement. They're also looking at different aircraft, which are substantially different from the Canadian one with substantially more cost involved.

What I would like to know is, in your opinion, whether the method in the Canadian or the American context is more accurate. Where do we sit on this? I want to make sure we're comparing apples and apples, and not apples and oranges again.

[Michael Ferguson]

Thank you.

Certainly the ability to compare was one of the concerns we had. For example, the Parliamentary Budget Office calculation indicates that they were assuming a 30-year life cycle. But again, the numbers that were prepared by National Defence were taken from the numbers that they had using their 20-year life cycle.

So there is a big problem with comparability between the numbers. Again, because National Defence understood at that time that the expected life cycle was 36 years, we thought the best way for them to respond would have been to come forward with their full life cycle costing based on 36 years, especially since they knew the Parliamentary Budget Office was using a 30-year life cycle.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you very much.

Chair, I think for the benefit of the people watching here, the very fact that we are here today in public accounts as one of the instruments of accountability in our government—and there are many—clearly illustrates the fact that government can collectively, despite our political posturing that takes place on a number of occasions.... Canadians should take comfort in the fact that we're here getting witnesses and testimony, and that we have a system that generally provides the best results for Canadians.

There are differences of opinion. Moving forward, the government has already announced a seven-point plan, freezing the acquisition, commissioning an independent review, establishing the secretariat—as you know—continuing to identify opportunities in the supply chain, providing annual reports to Parliament, etc.

The government has responded. Is this enough? Is this sufficient? The point is that lessons are learned every time we do business in this place and we hear testimony. This is why I think the duty and the responsibility of the public accounts committee is just that: accountability and oversight.

We thank you for being here today. I would certainly ask for your comments and/or your suggestions. The government has already taken a number of steps. Is there anything else you, with the benefit of hindsight, would suggest at this point that the government can do to adjust the process in future? This process was started back in the early 1990s, and we've taken it to the point we are at today. No dollar is significantly expended in acquisitions, but decisions have to be made going forward.

What would you suggest, so that we don't run into the situation of this happenstance again?

[The Chair, NDP, David Christopherson]

Briefly, Mr. Ferguson.

[Michael Ferguson]

Thank you, Mr. Chair.

Certainly I would be happy to give some further thought to that, but I think the critical thing for me—again, I haven't been through the government's plan—is making sure that there is a very clear statement of purpose for what is expected to happen from this point on, and that people understand what they're being tasked with. I think that is the critical point.

[The Chair, NDP, David Christopherson]

Thank you very much.

We'll move over to Mr. Kellway. You, sir, now have the floor.

[Matthew Kellway, NDP, Beaches—East York, ON]

Thank you, Mr. Chair, and through you to the witnesses.

To go back to where I left off, I was asking about the comment in 2.76 about parliamentarians being told misleading information, National Defence knowing that costs were likely to increase based on communication....

I take it that the communication, the information, that those costs were going to increase is related to the letter referred to in 2.64 from the U.S. Under Secretary of Defense for Acquisition. Is that correct? Is that the information?

[Michael Ferguson]

I'll ask Mr. Reed to answer that question.