Auditor takes on defence brass over F-35 cost calculations

Auditor General Michael Ferguson responded directly to officials from the Defence Department today, disputing their contention that they aren't required to count the full costs of a project like the F-35 fighter jet procurement.

"I am concerned with suggestions that accurate estimation and the inclusion of personnel, operating and maintenance costs are not important, since they would be incurred regardless of the aircraft selected to replace the CF-18," Ferguson said in his opening remarks to the House of Commons public accounts committee Tuesday.

Defence officials told the same committee May 1 that it is not their practice to include all life-cycle costs in project estimates.

"While we believe in and support life-cycle costing, it is not a requirement established by the office of the auditor general," Ferguson told MPs.

It is, however, required by the department's own policies, as well as by the Treasury Board, which sets spending standards in the federal government.

It was also specifically requested by Parliament in a 2010 motion from the House finance committee and in a ruling by then Speaker Peter Milliken.

Ferguson's April 3 report, in which he found the department wasn't upfront about the costs of the fighter jet that defence officials wanted, contained a chart showing internal estimates the department used but didn't disclose to the public.

Those figures, which showed the jets would be billions more than the government had said, were all defence estimates – not auditor general estimates, Ferguson noted.

Secret analysis

Ferguson wrote in his report that the Department of National Defence didn't exercise due diligence in choosing the F-35 to replace the CF-18, wasn't forthcoming with Parliament about its true estimated cost and made key decisions without required approvals or proper documentation.

His report also showed the department had internal estimates that 65 F-35 jets would cost $25 billion over 20 years, but would only admit to a cost of $14.7 billion. Defence Minister Peter MacKay and Associate Defence Minister Julian Fantino avoided answering questions about the full cost, insisting the jets would be $9 billion, despite months of formal and informal requests.

Ferguson told MPs his team had access to all the information they needed to write the report, although they were surprised to see some information that they expected to find within the departments only existed in secret memos to cabinet.

"There were types of analysis we felt should have been prepared and should have existed just as part of normal departmental process and it shouldn't have been something that they would have waited until preparing the memorandum to cabinet to include it," Ferguson said.

Something has to be done to make sure National Defence starts estimating full life-cycle costs, the auditor general suggested. 

"The fact that we are still talking about life-cycle costing and we are still talking about what's appropriate in life-cycle costing means that there needs to be some serious consideration about just how life-cycle costing is supposed to be applied," Ferguson said.

"It needs to be re-examined to determine the best way to apply it."

National Defence official says auditor wrong

Earlier this month, Robert Fonberg, deputy minister of the Department of National Defence, told the committee that DND traditionally includes the purchase price and sustainment, or maintenance, costs only, not operating costs. He said that's because those are included in annual budgets for the whole department, which are approved by Parliament.

The same approach was used for the F-35s as the four previous air force equipment procurements, he said.

Fonberg also contradicted Ferguson, saying cabinet didn't have the full cost estimates in 2008 the way Ferguson said they would have.

Ferguson says he stands by his report.

New Democrat MP Malcolm Allen says National Defence has "really gone rogue."

"And this defence minister has totally lost control of that department," he said.

Allen said he wants to see Fonberg back at committee to explain his remarks in light of Ferguson standing by his report, and suggested the top officials with National Defence could have to resign.

"If the officials in the Defence Department are actually misleading committee and misleading Parliament, then I guess they’ve gotta be gone. You can’t have folks at that level misleading Parliament or misleading the committee if indeed that’s what they’ve done," Allen said.

Tuesday's meeting is Ferguson's third appearance before MPs studying the process to replace Canada's CF-18 fighter jets with F-35 aircraft, more than a month after his report exposed internal estimates far higher than the ones disclosed publicly. 

Ferguson was initially scheduled to appear for before the public accounts committee on May 8, but an unexpected medical treatment left him recovering at home.

During his April 26 appearance, Ferguson told the committee that there was significant information missing from the government's cost estimates for the fighter jets.

Read Kady O'Malley's liveblog. Mobile friendly feed here.