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Auditor General report triggers government announcement
After months of insisting that the F-35 Joint Strike Fighter (JSF) was financially on track, the federal government has frozen the funding envelope and referred the troubled program to a new secretariat overseen by a committee of deputy ministers. The decision was confirmed in a joint statement by four ministers issued on April 3, less than two hours after Auditor General Michael Ferguson had effectively accused officials of having mismanaged the program and manipulating the numbers.
Ferguson core criticism of the Department of National Defence (DND) was that it had understated full life-cycle costs in the estimates used to justify its 2010 decision to buy the Lockheed Martin F-35 Lightning IIs, meant to replace Canada aging fleet of CF-18 Hornets. Moreover, there was a lack of timely and complete documentation to support the procurement strategy decision.
DND disagreed with Ferguson allegation that it had not exercised due diligence on the JSF program, saying that it was appropriate for the 2001-2011 period covered by the audit. But, it did acknowledge Ferguson point about life-cycle costs and promised to refine its estimates and make them public.
However, the audit evidently was the last straw for a beleaguered administration which has had to deal with a relentless barrage of political criticism in recent months, mainly over its insistence that the Royal Canadian Air Force (RCAF) would be getting aircraft for $75 million each.
In fact, the government own figures show that the up-front $9-billion acquisition budget for 65 aircraft worked out to $138.5 million each once weapons and RCAF base upgrades were included. The other identified cost was $16 billion for an initial 20 years of in-service support.
With program costs gone to afterburner in the U.S., where the Government Accountability Office said in late March that costs had ballooned by $119 billion US in the last four years, Ferguson auditors questioned DND calculations aggressively.
They suggested that given the way things have gone, 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.
Meanwhile, Ferguson said time is running out for the CF-18 Hornets, which first entered service in the 1980s. The fleet service life was extended to at least 2020 with a Boeing-run modernization program. Unless there is a suitable replacement, Canada will lose its fighter jet capability and, consequently, its ability to carry out domestic and international missions, Ferguson warned.
Associate Defence Minister Julian Fantino, who is responsible in cabinet for military procurement, was the lead minister on the announcement that the budget would be frozen and oversight handed to a new secretariat. It was Fantino who had acknowledged a couple of weeks earlier that affordability had become the government watchword on a CF-18 replacement.
While DND will continue to evaluate options to sustain . . . fighter capability, it now is required to provide annual updates to Parliament through the secretariat, Fantino said, in the joint announcement with Defence Minister Peter MacKay, Industry Minister Christian Paradis and Public Works & Government Services Minister Rona Ambrose.
These updates will be tabled within a maximum of 60 days from receipt of annual costing forecasts from the Joint Strike Fighter program office, beginning in 2012, the ministers said. The Department of National Defence will also provide technical briefings as needed through the F-35 Secretariat on the performance schedule and costs.
And before any approvals are issued, the Treasury Board will commission an independent review of DND’s assumptions and potential costs, as well as ensuring full compliance with procurement policies.
