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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

April 26th, 2012 / 9:40 a.m.

John Reed Principal, Office of the Auditor General of Canada

Thank you, Mr. Chair.

That was specific to the $75 million figure that was used in calculating the acquisition cost—$75 million per aircraft—and not related to the sustainment costs.

9:40 a.m.

NDP

Matthew Kellway NDP Beaches—East York, ON

Okay. Thank you.

9:40 a.m.

NDP

The Chair NDP David Christopherson

Thank you very much.

Moving along, Madam Bateman, you now have the floor, ma'am.

9:40 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

Thank you very much, Mr. Chair.

Thank you very much for being here with your colleagues. We certainly appreciate the work you do.

You will note, sir, that the moment the report findings came out, the Government of Canada took action. We absolutely want to have due diligence, oversight, and transparency in the work we do. That's why the work you do is so very valuable to us, so that we can better serve the citizens of Canada.

And I thank you for that.

I don't want to belabour the point, but you have referenced, on a few occasions, “substantive” costs and “indicative” costs. Could you give a thumbnail sketch that somebody over the fence, when I'm talking back home, will understand? What are substantive costs? What are indicative costs, as you've used them in this context?

9:40 a.m.

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

Michael Ferguson

Thank you.

I don't think we actually used those terms in this particular audit. I think we used them in perhaps one other.

Mr. Reed can give an explanation, I think.

9:40 a.m.

Principal, Office of the Auditor General of Canada

John Reed

Thank you.

Very simply, it's a reference to the degree of reliability and the degree of certainty. An indicative estimate is generally more of a preliminary one. A substantive estimate is one that's been thoroughly thought through and validated. So it's about the degree of reliability.

9:40 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

Okay. Thank you, sir.

It's pretty reasonable to then think that we are at the indicative stage in this, because these are all estimates at this juncture, right?

9:40 a.m.

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

Michael Ferguson

I think in something like this, there are always degrees of certainty. It's important to prepare the numbers based on the best information that is available, including all of the information that is known at that point in time.

Certainly, as you move through a project like this and as you get closer to the end, the estimates can be more and more precise. But even still, even in early phases, as we indicated, in this instance there were some specific types of cost elements that we felt should have been included because they should have been predicted.

So certainly over time these types of estimates can be more precise, but that doesn't mean that the original cost estimates should not include all of the cost elements.

9:40 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

Okay.

We are on the same page, sir, in terms of wanting due diligence, total transparency, and good oversight. As my colleagues have mentioned already, we have developed a process that has been very well regarded, not only in procurement circles but by many professions, with our shipbuilding process. Certainly we borrowed very heavily from that in our response to your report, which many have told me.... Some of my colleagues back home have told me that the response the Government of Canada gave to the Auditor General's report for chapter 2 this spring really exceeded, and will create a better system.

Can you let us know when you are going to have a chance to give us feedback on these models? We're here to serve the citizens of Canada better. We're here to make things more transparent and to provide better oversight mechanisms throughout the Government of Canada. It would be incredibly helpful to get feedback on these mechanisms, whether it's the seven-point plan or the shipbuilding process.

9:45 a.m.

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

Michael Ferguson

Again, at this point in time we don't have any specific audits planned on either of those items—the shipbuilding acquisition or the remainder of the process for the replacement of the CF-18s. We don't have anything specifically planned right now on either of those items.

9:45 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

Okay.

I just want to go back to the estimates process here.

9:45 a.m.

NDP

The Chair NDP David Christopherson

Very briefly, Ms. Bateman.

9:45 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

Way back in CA classes, way back in the dark ages...the present value of money; you know, we're doing extrapolations way out. Do you have documentation...?

And of course there's the accuracy. When you're doing extrapolations of figures as they go forward, they're inevitably less concrete than what you paid for a shirt yesterday.

Do you have documentation of all of the estimate processes used in this examination so that we could learn, and can you share that information with this committee?

9:45 a.m.

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

Michael Ferguson

Again, the numbers in the chapter are not our estimates. The numbers in the chapter are estimates or amounts that have been prepared by others, by the Department of National Defence, by the—

9:45 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

But surely the currency fluctuations alone—

9:45 a.m.

NDP

The Chair NDP David Christopherson

Madam Bateman, your time has expired. We're into overtime now.

9:45 a.m.

Conservative

Joyce Bateman Conservative Winnipeg South Centre, MB

Okay.

Thank you very much, sir.

9:45 a.m.

NDP

The Chair NDP David Christopherson

Mr. Ferguson, you may conclude your remarks on that question.

9:45 a.m.

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

Michael Ferguson

I think that's all I needed to say.

9:45 a.m.

NDP

The Chair NDP David Christopherson

You're good? Okay. Thank you.

It's just that we're over the time by well over a minute, and we want to be fair to everyone. Thank you, Madam Bateman.

We will now move to Mr. Byrne. You, sir, now have the floor.

9:45 a.m.

Liberal

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

Thank you, Mr. Chair.

Thank you again, Mr. Ferguson.

In your remarks to us this morning, you said, and I quote:

Going forward, it is important that the process to replace Canada's CF-18 fleet reflect principles of due diligence, scrutiny, rigour, and transparency.

Within chapter 2 of your report, your recommendation is that:

National Defence should refine its estimates for complete costs related to the full life cycle of the F-35 capability, and provide complete estimated costs and the supporting assumptions as soon as possible.

It is exclusively for the F-35.

In plain-speak, Mr. Ferguson, have you come to the conclusion that the F-35 is the only aircraft that's really on the table at this point in time? Your recommendation only deals with the F-35 in terms of providing a go-forward cost estimate or analysis, but your indications to us today are that the departments involved really need to go back to square one and look at all options and do this properly.

Do all options include looking at other options, other than the F-35?

9:45 a.m.

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

Michael Ferguson

Thank you.

Certainly we identified in the report that everything in the process that we looked at was leading towards an eventual purchase of the F-35. In fact, in 2008 National Defence themselves said it would be exceedingly difficult to operate a competition that would include the F-35 because of National Defence's participation in the joint strike fighter program. There were various activities that occurred over the length of time that would indicate that this was moving towards an acquisition of the F-35. However, the jets have not been purchased yet, and under the memorandum of understanding in 2006, as I understand it, the government does not necessarily have to purchase the F-35.

What's important right now, for the new committee that's going to be looking at this, is, number one, to have very clear direction about whether this is an opportunity to look at all options moving forward or whether the F-35 is the only option. If the direction is to look at all options, then one thing that is very critical is to indicate and to determine how the playing field would eventually be levelled if there was going to be a procurement.

So we're not saying that it can't be done. We're simply saying that during the process, everything seemed to be leading towards the purchase of the F-35. That's why our recommendation was around the costing of the F-35. But what's important from this point on is the direction that the government gives to those tasked with the eventual replacement of the CF-18.

9:50 a.m.

Liberal

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

Thank you, Mr. Ferguson.

It is an important issue, because of course the government is asserting that no jets have been purchased, but if a reasonable person concludes that the only option available to us is a hypothetical aircraft, the F-35, and that we have to go down this road, I think a reasonable person would assert that we've actually purchased the F-35. That is an important distinction as we discuss this and we generate a report.

To Mr. Reed, you were the principal auditor for this particular chapter, is that correct?

9:50 a.m.

Principal, Office of the Auditor General of Canada

9:50 a.m.

Liberal

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

Did you have any discussions with either ministers or deputy ministers, or files contained exclusively within the offices of ministers or deputy ministers, in compiling your evidence, your audit materials, for this chapter?