OTTAWA – A scathing report from Canada’s auditor general has prompted the Conservatives to overhaul the way it plans to buy a fleet of fighter jets.
In his first report as auditor general, Michael Ferguson slammed the government for underestimating costs, making their own rules, and downplaying the risks involved in purchasing the F-35 jets.
“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,” said Public Works Minister Rona Ambrose.
The audit uncovered that the Department of National Defence planned to spend at least $25 billion to buy 65 F-35 jets as early as 2008, despite the fact that the government consistently told Canadians the price tag was closer to $16 billion.
It also paints a picture of a government intent on purchasing the F-35 jets as early as 2006, bypassing the government’s procurement authority – Public Works and Government Services Canada (PWGSC) – and keeping key details from decision makers.
“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.”
In response, the Conservatives announced it would establish a new F-35 Secretariat at Public Works to co-ordinate the replacement of the CF-18 fleet.
“The auditor general has identified a need for greater independence and supervision over some of the activities at the department of national defence. In this regard, the government will put that supervision in place before we proceed,” Prime Minister Stephen Harper said during question period.
The government also pledged to have the Treasury Board Secretariat, which oversees government spending, review the F-35 project, its costs and compliance with procurement policies before approving it.
Meanwhile, Industry Canada will report to Parliament about the benefits to businesses of participating in the Joint Strike Fighter program. The government will do all of this before it signs a contract to buy any F-35 jets.
Costs could exceed $25 billion: report
The government also responded to the auditor general’s concerns about skyrocketing costs, by freezing the budget for the F-35 purchase and pledging to give Parliament annual updates on the jet’s development, performance and costs starting in 2012.
Since announcing the plan to purchase the jets in 2006, the Conservatives have beat back growing criticism that the jets would never be delivered on budget given the delays and technical problems plaguing the American-led project south of the border.
Ferguson’s report said DND officials heard of the problems, but didn’t share them with decision-makers like the minister.
“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 reads.
The report questions the reliability of the $25-billion price tag as it is based on a 20-year life cycle, instead of the true flying life of 36 years, and it does not include the costs of replacement aircraft, weapons or upgrades, according to the report.
“Even now any costing would be based on estimates,” Ferguson said.
Ferguson said the government missed a key chance to correct its course last year when Parliamentary Budget Officer Kevin Page released a report estimating the F-35 purchase would cost the government $28.5 billion over 30 years. The government came back and said the costs would be $14.7 billion.
“That would have been a prime opportunity for National Defence to bring forward to Parliament the full costing of the project and they didn’t do that,” he said.
When it came to presenting the possible regional benefits of the procurement, Ferguson found DND also only put forward the best case scenario instead of the range of options possible.
Who is to blame?
While Ferguson shied away from laying blame for the problems, a former assistant deputy minister with National Defence says the blame for not acting earlier lies squarely with the ministers responsible.
When the United States, MPs and experts started raising questions, all ministers involved in the procurement process should have put their foot down, said Alan Williams, who, while at National Defence in 2002, signed the memorandum of understanding that brought Canada into the Joint Strike Force Fighter program.
“In procurement in Canada, there is no one accountable,” he said. “The structure allows the minister of public works and the two ministers at DND to overlap and duplicate. They just bounce the ball back and forth between them, so no one is responsible. The prime minister doesn’t know who to bring into his office to address the issue.”
In this particular file, however, the public works minister is the person responsible for the integrity of the process, Williams said.
NDP leader Thomas Mulcair said it is ministers who need to be held accountable, and the prime minister is first among them.
“There’s no possible way you can have confidence in this government on the F-35s. They’ve cooked the books. They’ve lied to Parliament and they’ve put in place a completely phony process that could only have one possible outcome – that aircraft,” he said.
Opposition demand open tender for F-35
Both the NDP and Liberals were urging the Conservatives to hit the reset button and open a new bidding process to replace the CF-18s.
“Without the tender, the blunder is going to go on and on indefinitely into the future,” said Liberal MP Ralph Goodale. “Canada will end up with a few very expensive planes, but not nearly the number the defence department has said is necessary.”
Ferguson said sorting out how to hold a fair competition including the F-35 would be a challenge.
The announcement to purchase 65 F-35 jets through a sole-source contract was made with great fanfare in 2010, but Ferguson said the government had already decided to buy in 2006.
Canada signed on to the Joint Strike Fighter aircraft program in 1997, in a bid to win contracts for Canadian companies interested in designing and manufacturing the F-35 Lightning II jets.
By 2006, the Canadian government had to decide whether it would sign an agreement on whether it would be part of the production, procurement and maintenance of the new jets.
The audit suggest PWGSC and other government departments should have been brought on board at this point to figure out how to deal with the unique realities of the F-35 program and how to assess costs and risks.
PWGSC did get involved in the decision-making in 2010, but the report suggests it did not do its due diligence as the government’s procurement authority, coming in late and signing off on the jets without proper analysis.
“We believe this has compromised an important control in the procurement process: independent validation of a proposed procurement strategy,” wrote the auditor general in the report.
National Defence has responded to the report by pledging to refine its cost estimates and to make them public. Both DND and PWGSC disagree with the auditor general’s criticism about the lack of due diligence.
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