By Lee Berthiaume
OTTAWA — The Tories have promised a complete and public review of the stealth fighter program and opened the door to potential competitors after a scathing report found defence officials twisted government rules, misled ministers and Parliament, and whitewashed cost overruns and delays in a determined effort to ensure Canada purchased the F-35 jet.
Auditor-General Michael Ferguson’s scathing assessment, released today, puts the military’s own cost estimates for Canada’s involvement at $25 billion — instead of the publicly stated $16 billion — and questions assertions that Canadian industry stands to benefit from $12 billion in contracts.
The Auditor-General’s report also says the F-35 was “clearly the fighter jet of choice” as early as 2006, and that officials intentionally played up the F-35’s stealth capabilities to sidestep established purchasing guidelines.
“National Defence did not exercise the diligence that would be expected in managing a $25-billion commitment,” Ferguson said. “It is important that a purchase of this size be managed rigorously and transparently.”
The report forced immediate changes to the handling of the fighter program: “Funding will remain frozen and Canada will not purchase new aircraft until further due diligence, oversight, and transparency is applied to the process of replacing the Canadian Forces’ aging CF-18 fleet,” Public Works Minister Rona Ambrose said after the release of the review.
The Auditor-General refused to target anyone for blame, instead putting the onus on the government to clean up the process for replacing the country’s CF-18s.
“It’s difficult for me to try to point fingers at any particular individual,” Ferguson said shortly after tabling his report in the House of Commons. “What it comes down to is the process was not what it should have been.”
But accusing the government of incompetence, opposition parties described the new measures as a shell-game and declared that nothing short of an open, fair and unbiased competitive process would serve to set aside continuing doubts about the multibillion-dollar project.
“A competitive tender is really the only credible alternative here,” said Liberal MP Ralph Goodale. “Without a tender, the blunder will continue on and on into the future.”
Ferguson’s report says Canada initially joined the F-35 program in 1997 not with the intention of purchasing the stealth fighter, but to ensure Canadian industry could win contracts associated with developing and producing the fighter.
That changed in 2006 when a memorandum of understanding was signed by Canada and eight other partner nations committing them to long-term participation in the project. By then, the military was knee-deep in the program.
“By the end of 2006, the (Defence) Department was actively involved in developing the F-35, and a number of activities had put in motion its eventual procurement,” the audit report says.
The report says that in convincing the Conservative government to sign onto the MOU, the military talked up the potential billions in contracts Canadian industry could secure if the country continued to participate in the project.
However, “while ministers were told, correctly, that signing the 2006 MOU did not commit Canada to buy the F-35, we did not see evidence they were told that retaining industrial benefits depended on buying the F-35 as a partner in the [Joint Strike Fighter] program.”
In addition, “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.”
Defence Department officials also did not tell ministers that by signing the memorandum of understanding, the government would be hard-pressed to run a fair competition in the future to replace Canada’s ageing fleet of CF-18s.
Normal government procurement rules say departments must lay out their requirements so multiple companies can bid on the contracts. That, however, didn’t happen with the F-35.
In fact, starting in late 2008, the report says, Defence officials “led a process to get a government decision to buy the F-35, partly in response to pressure from industry.” Following Canada’s signing onto the MOU in 2006, the report says, the Defence department began putting together necessary documents to support the eventual purchase of the aircraft.
To get around requirements for a competitive bidding process, officials intentionally played up the fact the F-35 was the only fifth-generation aircraft available to Canada.
In May 2010, the Public Works Department, which is supposed to provide oversight of all major government purchases, questioned the military’s assertion that no other aircraft could meet Canada’s requirements.
REUTERS/Tom Reynolds/Lockheed Martin
Whitewash: Two F-35 Lightning II, also known as the Joint Strike Fighter (JSF), fighter aircraft are seen as they arrive at Edwards Air Force Base in California in this May 2010 file photo.
It eventually agreed to waive requirements for a competitive bidding process “if National Defence provided a letter confirming National Defence’s requirement for a fifth-generation fighter and confirming that the F-35 is the only such aircraft available.”
Over the four years between when the MOU was signed and the Conservative government’s announcement in July 2010 that Canada would be purchasing 65 F-35s, the report says, military officials regularly downplayed or glossed over cost overruns and delays afflicting the stealth fighter program.
“Officials from National Defence who participated in the senior decision-making committees of the (Joint Strike Fighter) program were regularly informed of these problems,” the report says. “Yet in briefing materials from 2006 through 2010 that we have reviewed, neither the Minister nor decision makers in National Defence and central agencies were kept informed of these problems and the associated risks of relying on the F-35 to replace the CF-18.”
The report also notes “significant concerns about the completeness of cost information provided to parliamentarians.”
In particular, it notes that in response to Parliamentary Budget Officer Kevin Page’s estimate in March 2011 that Canada’s purchase of 65 F-35s would cost $30 billion, the Defence Department “did not include estimated operating, personnel or ongoing training costs” in putting the cost at $14.7 billion.
The fact is, the report says, National Defence’s own cost estimates put the program at $25 billion in June 2010.
That wasn’t the only time the military provided incomplete information, according to the Auditor-General’s office.
F-35s and Canada
1997: The Department of National Defence (DND) signs the Joint Strike Fighter Program’s first-phase memorandum of understanding, making Canada part of the F-35 development program.
2001: The federal government signs on to the second phase of the program. Treasury Board approves $171 million for the second phase. A Canadian representative is assigned to the F-35 program office.
2006: DND completes a preliminary analysis of five aircraft that could replace the ageing CF-18 fleet. The federal government agrees to the third phase of the F-35 project and Treasury Board officials approve $192 million in spending.
2008: DND identifies 14 “high-level mandatory capabilities” the aircraft meant to replace the current CF-18 fleet must meet, and completes an analysis of three contender replacements. DND asks the federal government for permission to buy the F-35.
2010: The federal government announces plans to buy 65 F-35 fighter jets. In a letter to Public Works and Government Services Canada, which oversees government procurement, DND justifies buying the jets without inviting competition.
2011: The Parliamentary Budget Officer releases a report that says the government is under-estimating the cost of the F-35.
2012: DND asks Treasury Board for the power to approve expenditures on the F-35.
2019: Expected delivery date of the first F-35s in Canada.
2020: Estimated end of the current CF-18 fleet.
“We observed that National Defence told parliamentarians that cost data provided by U.S. authorities had been validated by U.S. experts and partner countries, which was not accurate at the time,” the report says. “At the time of its response, National Defence knew the costs were likely to increase but did not so inform parliamentarians.”
Ferguson’s report says National Defence “has been overly confident” about the F-35 program’s budget and schedule, and raised concerns that the stealth fighter would not be ready by the time Canada’s CF-18s are due to retire by 2020. It notes that “decisions taken to date as well as those yet to come will have impacts for the next 40 years.”
In a rare move, the Defence and Public Works departments both said they disagreed with the Auditor-General’s report, arguing they had conducted due diligence in managing the program.
Still, the government was expected to announce Tuesday that it is moving the F-35 program out of the military’s hands and giving it to the Public Works department It will also provide annual updates to Parliament on the progress of the stealth fighter program and establish a committee of senior bureaucrats to monitor the project.
The government will also promise to look at all alternatives to replacing Canada’s aging fleet of CF-18 fighters, which are due to retire within the next decade. This could include revisiting Boeing’s Super Hornet.
The Conservative government initially announced in July 2010 that Canada would buy 65 F-35s for $9 billion to replace the country’s ageing fleet of CF-18s, a decision it steadfastly supported for the next year and a half, including during the last federal election.
The announcement was made without an open bidding process and would be this country’s largest-ever military purchase.
But recent months have seen the Conservative government back away from that commitment, with Associate Defence Minister Julian Fantino admitting last month that the government hasn’t closed the door on walking away from the F-35.
This isn’t the first time an Auditor-General has blasted the military for its conduct in the purchase of a major piece of equipment. Previous reports in 2006 and 2010 criticized the Defence Department for deliberately low-balling costs in order to get the equipment it wanted.
Two years ago, Sheila Fraser concluded National Defence knew the Chinook heavy lift helicopter it wanted to buy was not an “off the shelf” model, with a relatively low risk of cost and time overruns.
Yet the department did not reveal this to Treasury Board when it sought project approval. As a result, the cost of the 15 Chinooks more than doubled to $4.9-billion and the helicopters still have not been delivered.
A similar story accompanied the purchase of 28 maritime helicopters, according to Ms. Fraser, who lamented the gaps in the fullness of information supplied to MPs. “[DND] under-estimated and under-stated the complexity and developmental nature of the helicopters it intended to buy,” she said.