Cost Estimation and Performance Measurement in Canadian Defence

The relationship between the Canadian Government and the Department of National Defence between 1945 to 2010 is examined from the perspective of the struggles between a principal, an agent and a monitor using the reports of the Auditor General as a basic source of information. Evidence is presented of an efficient exchange between the principal (Government) and the agent (Department of National Defence) which is complicated by the monitor (Auditor General) who reports `bad' behaviour by the Department to Parliament rather than to Government. The Government buys votes through industrial and regional benefits in exchange the Department of National Defence gets new military equipment that it would not get otherwise. In terms of performance measurement, the Government receives success stories and budget controls and in exchange the Department of National Defence receives autonomy in the conduct of its business. The Auditors General, on the other hand, criticize this efficient exchange because they have a narrower vision of `value for money'.