By Ken Pole | July 6, 2012 Estimated reading time 3 minutes, 47 seconds.
The federal government’s plan to acquire new fighter jets, currently focused exclusively on the Lockheed Martin F-35A Lightning II amid continuing political controversy, is about to be put under a microscope by external auditors.
Public Works & Government Services Canada (PWGSC) has issued a Request for Proposal for a “review of the Department of National Defence (DND) acquisition and sustainment project assumptions with respect to the estimated costs” of the Joint Strike Fighter program. That would extend to eventual “disposal” or “decommissioning” of the proposed 65 aircraft, which could be at mid-century or beyond.
More than a dozen auditing firms – including such well-known names as BDO Dunwoody, Deloitte & Touche, Ernst & Young, KPMG and Pricewaterhouse Coopers – are shortlisted for the project, which is expected to be completed by mid-November.
The audit comes in response to criticism by Auditor General Michael Ferguson last April that DND had mismanaged the JSF program and manipulated the numbers. His core criticism was that DND had “understated” full life-cycle costs in the estimates used to justify its 2010 decision to sole-source the replacement for Canada’s aging fleet of CF-18 Hornets. Moreover, “there was a lack of timely and complete documentation to support the procurement strategy decision.”
That apparently was the final straw for the government, which had insisted for months that the program was financially on track. Two hours later, the government froze the “funding envelope” and referred the troubled program to a new secretariat overseen by a committee of deputy ministers.
But DND disagreed with Ferguson’s allegation that it had not exercised due diligence, saying that its estimates were “appropriate” for the 2001-2011 period covered by Ferguson’s audit. But it did concede his point about life-cycle costs and promised to “refine” its estimates and make them public.
A key point for Ferguson was the government’s insistence that the Royal Canadian Air Force would be getting aircraft for $75 million each. The government’s own figures show that the upfront $9-billion acquisition budget for 65 aircraft works out to $138.5 million each, once weapons and RCAF base upgrades are included. The other identified cost was $16 billion for an initial 20 years of in-service support.
JSF program costs have skyrocketed in the U.S., where the Government Accountability Office has said they ballooned by $119 billion in the last four years alone, implying higher unit costs to all JSF customers. Ferguson suggested that the RCAF might have to scale back the already-reduced number of aircraft it acquires, or even reduce flying hours. Failing that, the government would have to increase the JSF budget or divert funds from other departments’ programs.
Whichever company gets the contract for the new audit will be tasked with assessing the “appropriateness of the scope, assumptions and calculation by DND of the cost estimate,” potentially against other countries’ yardsticks. It also would be asked to develop a “framework” which could be applied to other major defence acquisitions.
