OTTAWA – Spending watchdog Sheila Fraser’s annual report Tuesday highlighted "troubling" cost overruns, significant delivery delays and lack of oversight in the federal government’s $11 billion purchase of two fleets of military helicopters.
Defence Minister Peter MacKay pledged to address all of the auditor general’s recommendations but bristled at opposition attacks based on the report which raised fresh criticism of the government’s plan to spend $16 billion on a sole-source contract for 65 F-35 fighter jets to replace the aging CF-18 fighter fleet.
MacKay defended the Conservative government’s record by saying the Canadian Armed Forces are getting the best equipment far faster than under previous governments.
"We’ve cut procurement time in half and we’ve seen the effect on the ground: wheels and wings now working in the best interests of Canadians in missions like Afghanistan, humanitarian missions like in Haiti (this year’s earthquake), like in Jamaica (Hurricane Dean in 2007)," MacKay told reporters. "We’ve been able to respond in record time to urgent operational needs of the Canadian Forces."
Fraser’s audit said the cost of purchasing and servicing 28 CH-148 Cyclone maritime helicopters and 15 CH-147 cargo-styled Chinooks has reached $11 billion – more than twice the initial $5 billion estimates defence officials provided to cabinet, excluding service and maintenance costs. And their delivery is at least half a decade behind schedule, she said.
Fraser announced that her findings have prompted her to order an audit of the government’s F-35 fighter jet plan. Opposition leader Michael Ignatieff seized on the report as support for his call to hold a competition to replace the CF-18 fighter fleet. The government says only Boeing’s F-35 fits that bill.
"The Auditor General has run up a red flag on Canadian procurement policy and says this is what happens when you don’t have a fully competitive and transparent bid," Ignatieff said. "There’s $16 billion of Canadian taxpayers’ money at stake here . . . Why don’t we learn from the mistakes that the auditor general said we made on the helicopters?"
Fraser confirmed what the opposition Liberals have been charging about the Harper government’s contract process for the Chinooks. It "was not fair, open and transparent to potential suppliers," she said. "We also found that National Defence underestimated and understated the complexity and developmental nature of the helicopters it intended to buy," she said.
Defence officials strongly disagreed with her report and at a briefing, insisting the competitive process was fair and open.
MacKay responded that the government had to "Canadianize" an off-the-shelf helicopter for long-range flights and cold weather.
Fraser’s report breathes new life into Canada’s longest-running defence procurement saga – replacement of the decades-old Sea King helicopters. That dates back to mid-1980s efforts by the Progressive Conservative government of Brian Mulroney to replace the Sea Kings.
She found defence officials wrongly assumed Cyclone maintenance costs would be the same as for the Sea Kings and that they could keep using Sea King warehouses, training and squadron facilities when the Cyclones finally arrive. Those unanticipated costs total about $1.3 billion.
Elsewhere in her report, Fraser offered compliments and criticism on a range of programs that were audited. Most notably, she concluded the Conservative government’s two-year economic stimulus program was designed well, as the Tories tried to grapple with the recession in 2009.
She also said the government isn’t doing enough to train its bureaucrats on how to avoid conflict of interest, and that federal regulation of the banking sector is working well.
While the auditor general understood that acquiring complex military equipment such as the helicopters presents unique challenges, she said "the results of this audit are troubling."
The cost of the purchase, training and 20 years maintenance of 28 Cyclones, chosen to replace the navy’s Sea King fleet, is estimated at $5.7 billion with delivery slated for 2013, seven years behind schedule.
The cost of the purchase, training and maintenance of the Chinooks, a medium-to-heavy lift helicopter, is estimated at more than $4.9 billion with delivery expected in 2013, five years later than originally planned.
"Each acquisition has entailed substantial unplanned costs," Fraser said.
A key example is that defence officials underestimated by $1.1 billion the cost of maintaining the Cyclones over 20 years.
Fraser warned that some costs are yet to be completely estimated and some elements needed for the helicopters’ capabilities are not in place.
Without adequate cost information, the military cannot plan for the long term and if there are insufficient funds, may have to curtail planned training, flying hours and operations, she warned.
The auditor found nothing wrong with the original competitive contract award process for the Cyclones, handled by the Liberal government of Paul Martin, but was critical of amendments to the contract in 2008.
Fraser said the Defence Department did not follow its own rules governing the management and oversight of defence equipment purchases, and did not disclose total costs to Treasury Board.
The auditor found that, when a contract bidding call for helicopters went out in 2006, there was "uncertainty" about what the helicopter would be used for – whether land, maritime or special operations – and what mission systems would be needed, the minimum number required and other precise information.
That means the requirements of the helicopter evolved over time and many modifications were required to the "off-the-shelf" Chinook helicopter the government decided to purchase from Boeing.
That added two years to the contracting process, and led to delivery delays and cost increases, the auditor said.
"In our opinion, National Defence underestimated the complexity of configuring this helicopter," the report said.
The department agreed with the auditor general’s recommendation to ensure in future that procurement strategies are tailored to the complexity of the equipment being purchased.
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