The Department of National Defence kept politicians and other branches of government in the dark about key details of the F-35 stealth fighter project and underestimated cost overruns and the price of upgrades, Auditor General Michael Ferguson said in his report released Tuesday.
Ferguson's criticisms ranged from the lack of oversight by the Public Works Department, to DND's failure to follow required checks and balances.
The federal government quickly responded to the report. Public Works Minister Rona Ambrose released a statement Tuesday saying the government was putting the fighter jet project on hold until it can improve the procurement process.
The government also took away DND's ability to buy new weapons systems, handing that role over to Public Works.
Ferguson said while Public Works should have done a better job overseeing the F-35 purchase, but was as scathing as bureaucratic language allows for in his criticism of DND.
"Briefing material did not inform senior decision makers, central agencies, and the Minister of the problems and associated risks of relying on the F-35 to replace the CF-18," Ferguson said in his report. "Nor did National Defence provide complete cost information to parliamentarians."
While the Conservative government said it accepted the auditor general's report, DND rejected the criticism that it didn't do its due diligence in managing the purchase.
"They agreed we had the facts right," Ferguson said of DND on CTV's Power Play later on Tuesday. "We collected the evidence and we came to the conclusion that significant due diligence was not applied."
Ferguson noted that Parliamentary Budget Officer Kevin Page said in 2011 the F-35 project would cost far more than claimed by the government, but DND didn't come forward with a full costing.
Page's office responded to the auditor general's report with a statement Tuesday afternoon, saying it was vindicated in its estimate.
"In March 2011, the Parliamentary Budget Officer (PBO) provided Parliament with a report on the estimated acquisition and sustainment costs associated with Canada's planned purchase of 65 F-35 fighter jets. Shortly thereafter, the Department of National Defence (DND) responded to the PBO report. In that response, DND claimed that the total costs associated with the F-35 program would be approximately $15 billion. However, the recent auditor general's report reveals that, in June 2010, DND's true cost estimate was approximately $25 billion -- representing a difference of $10 billion. The inclusion of this difference would bring DND's cost estimate in line with that of the PBO," the statement said.
Page's office remains "ready and willing" to continue providing independent analysis on the procurement process, the statement added.
The opposition, who have long criticized the government's handling of the F-35 procurement process, said the Conservatives had mislead Canadians on the file.
"The auditor general has concluded the Conservatives knew their figures were misleading, but they gave them to parliament anyway," NDP Leader Thomas Mulcair said in the House of Commons Thursday. "The report is a litany poor public administration, bad decision making, and a lack of accountability by Conservative ministers."
"But they key question to the prime minister is; How could he allow Parliament to be intentionally mislead on the F-35s? Either he knew and it's unconscionable or he didn't, and it's incompetence."
Prime Minister Stephen Harper called Mulcair's accusations a "mischaracterization of what the auditor general actually said.
"The government has not yet purchased this airplane, has not yet signed a contract. The auditor general has identified a need for greater independence and supervision over some of the activities in the department of Defence," he said in response to Mulcair.
"The government will put that supervision in place before we proceed."
Liberal MP Ralph Goodale said the government's defence on the issue "is not credible."
"It's the prime minister's job to know the truth and to tell the truth and he's failed," he said during question period Tuesday.
The report's findings
The audit also said DND had decided to purchase the F-35s four years before the decision was announced to Canadians.
Ferguson said because the decision was made in 2006 to go forward with the F-35, many of the steps and documents used to support the purchase were "of little consequence," which called "into question the integrity of the process."
Among other topics the auditor general's report also looked at border controls on commercial imports, the handling of Canada's interest bearing debt and loopholes in the Canada Revue Agency.
The statement also said funding for the jets will remain frozen until due diligence, oversight and transparency are improved.
The government also announced an inter-departmental secretariat will be established to oversee the project -- similar to one set up for a massive ship-building contract that was recently signed.
In his report, Ferguson said key checks and balances were missed in the leadup to the sole-sourced decision to purchase the F-35s.
"Key decisions were made without required approvals or supporting documentations," the report states.
"National Defence knew the costs were likely to increase but did not so inform parliamentarians."
In his report, Ferguson also said he had serious concerns about the fact a budgetary cap was established of $75 million per plane, without "complete and reliable cost estimates."
Critics have said the price tag set out by the Conservative government may only cover half of the actual cost of the jets when all is said and done.
The report also criticized the Public Works Department for not exercising due diligence in overseeing the purchase plans. However, Public Works rejected that finding.
And Ferguson's report pointed out that projected benefits to the Canadian aerospace industry fluctuated wildly from $5.2 billion to $15.4 billion depending on which document was being looked at.
"Moreover, in the majority of cases, only the most optimistic scenario was put forward, rather than a range of potential benefits that reflected the inherent uncertainties in the projections," says the audit.
"We are concerned, because these projections were used to support key decisions related to Canada's participation in the JSF Program and the purchase of the F-35 aircraft."
Speaking to reporters after his report was released, Ferguson said one of the major issues he identified was that DND didn't have contingency plans to deal with unexpected cost increases.
That will have to be addressed going forward, he said.
"The government has an intention to replace the CF-18 jets so what they need to do is figure out what their process is going to be from here on until the actual acquisition of replacement jets," Ferguson said.
"And they need to make sure that process is a good process, that it works well and it needs to deal with some of the issues we identified, for example risk mitigation strategies and full cost information."
The military agreed with a recommendation by Ferguson that it refine its cost estimates for the life cycle of the jets, but rejected the suggestion it did not exercise due diligence in managing the project.
While Canada has not committed to the purchase, it has already invested $335 million in the program over the past 15 years.
The audit comes just one week after Finance Minister Jim Flaherty announced $5.2 billion in cuts to public spending in his deficit-fighting budget.
Associate minister of National Defence Julian Fantino said the government "accepts the conclusions of the auditor general and we will implement his recommendations.
"A budget has been allocated and we will stay within that budget."
The Conservative government has maintained for months that its estimated purchase price of $75 million per plane is accurate. However, the U.S. and Britain have signed contracts with a per-plane price of between US$140 and US$145 million.
Defence Minister Peter MacKay and Fantino have insisted the price will drop by the time Canada starts purchasing the planes in 2016.
However, in recent weeks Fantino's tune has changed slightly. The junior defence minister's message recently went from solidly backing the F-35 deal, to saying the Conservatives were looking at all options to replace the aging CF-18 fleet.
In mid-March, Fantino said the government hasn't signed any commitments and could still back away from the purchase altogether.
"All options are on the table," Fantino said. "We will manage the replacement of the CF-18 in a responsible fashion, and in a way that safeguards taxpayers' dollars."
Fantino maintained the $75-million per-plane budget is firm, however.
The Conservatives have set aside $9 billion to replace the CF-18s with 65 F-35s.
Late last year while speaking in Fort Worth, Tx., the home of the F-35-maker Lockheed Martin, Fantino took a much different tone.
"We will purchase the F-35," he was quoted as saying. "We're on record. We're part of the crusade. We're not backing down."
