F-35 process ‘corrupted’ from the beginning, says Williams
By BEA VONGDOUANGCHANH
Published: Monday, 12/17/2012
Federal bureaucrats are the ones who “hijacked” the F-35 procurement process, but Cabinet ministers went along without questioning it when they should have in order to avoid the controversy the government is facing today on acquiring 65 stealth fighter jets at a newly-projected cost of $45.8-billion over 42 years, say some critics.
“We know that the fiasco certainly started by the bureaucrats hijacking the process,” said Alan Williams, former assistant deputy minister for procurement in National Defence and a leading critic of the government’s F-35 procurement process.
Since 2010 when the government signalled it would in fact buy the F-35s in a sole-sourced procurement process for $9-billion and $7-billion in operation and maintenance costs, it has been mired in controversy over several issues—the two major ones being a disputed cost (the Parliamentary Budget Office estimated the price tag to be $29-billion over a life-cycle of 30 years for acquisition, operation and maintenance which Auditor General Michael Ferguson later verified in his own report at $25-billion over 20 years) and the secrecy behind the sole-sourced procurement, which eventually led to the government being found in contempt of Parliament and triggered the May 2011 election.
All along the way, the majority-governing Conservatives have maintained that their numbers are correct, that the PBO was wrong, that the Canadian Air Force needs the F-35s and would not go to an open competition for new fighter jets to replace Canada’s ageing CF-18s, that the opposition was not patriotic enough or standing behind men and women in uniform, that they followed Treasury Board guidelines, and that they won a majority government which clearly meant Canadians were behind them on the purchase.
When Mr. Ferguson said in his critical April 2012 report that the government did not apply due diligence in this case, the government slightly retreated and set up the National Fighter Procurement Secretariat, moving the procurement process from DND to Public Works, and introducing its “seven-point plan” to address the F-35 acquisition.
It back-pedalled again last Wednesday when it released an audit by KPMG which analyzed the stealth fighter jets’ full life-cycle costs at $45.8-billion over 42 years, including $565-million for development, $9-billion for acquisition, $15.2-billion for maintenance, $20-billion for operations and $65-million for disposal.
The estimate was for 30 years of operation and 12 years of research and development and disposal.
Mr. Williams said it didn’t have to come to this, however.
“Why the ministers blindly went along with it, I don’t know. Why they didn’t question and challenge, why [then National Defence Minister Gordon] O’Connor didn’t say to them, ‘You’re recommending this to me? Where’s the statement of requirements? Why should I accept this? My staff tell me that this is just in the early stages of development? How the hell do you know what’s it going to be able to do? You can’t even tell me how much it’s going to cost? What kind of stupid support am I getting from you guys?’ That could’ve been his reaction, but it wasn’t obviously. They bought into it. I’m not sure why they bought into it. I do know that the bureaucrats were inexcusable in making that recommendation, but I can’t explain why for the last two years when all the information was coming out saying that everything that they were saying made no sense, why they simply didn’t get off the train earlier,” Mr. Williams told The Hill Times.
Last week, the government said it would “reset” the procurement process that would allow the fighter secretariat to complete its “seven-point plan” and return to an “options analysis” of available fighter jets to meet Canada’s needs, but stopped short of saying that it would move to an open and transparent competitive bidding process with a change in DND’s statement of requirements.
“We are pressing reset on this acquisition in order to ensure a balance between military needs and taxpayer interests. To do so, we need to have all viable options on the table for the replacement of the CF-18,” Defence Minister Peter MacKay (Central Nova, N.S.) said at a press conference last Wednesday on Parliament Hill. “No decision on a replacement for Canada’s ageing fighter aircraft will occur until the seven-point plan is complete.”
Public Works Minister Rona Ambrose (Edmonton-Spruce Grove, Alta.) announced the independent panel that will be overseeing the options analysis.
“The next step is a full review of options. We have hit the reset button and are taking the time to do a complete assessment of all available aircraft,” Ms. Ambrose said at the same press conference. “Consistent with the aims to improve due diligence, oversight and transparency, this work will be informed by a panel of independent reviewers external to government. Their involvement is meant to ensure that the work performed is both rigorous and impartial.”
Members of the panel are former CF fighter pilot Keith Coulter who also served as chief of the Communications Security Establishment; University of Ottawa professor Philippe Lagassé; lobbying firm Sussex Circle founder Jim Mitchell; and former comptroller general of Canada Rod Monette.
But critics said last week that if the government is truly to “reset” the process, it would quickly move to rewrite the statement of requirements, make that public so all Canadians know why the Air Force needs new fighter jets and what capacities are needed to meet Canada’s future needs, and then put it out to a public tender in a request for proposal.
Mr. Williams said the options analysis is a “waste of time” because it won’t tell the government anything it doesn’t already know.
“The whole procurement process was perverted from the beginning,” Mr. Williams said. “When you buy something, you start with a statement of requirements that’s open, fair, and transparent. And then, you search the marketplace to find the best product that meets those requirements. That’s what you do. It’s not that complicated.” Mr. Williams said bureaucrats recommended the F-35 based on “a very superficial options analysis, an incomplete options analysis that the Air Force had conducted themselves.” He said that the ADM material should have stepped in and said, “That’s not how we do business here.’” Instead, Mr. Williams said the ADM said, “Okay, I’ll take your very superficial analysis and I’ll tell the minister this is it.”
Mr. Williams said, “Right from the very beginning, the process was corrupted. And, right from the beginning, every argument that the government put out to support their decision was flawed and misleading. ... That’s where it all went wrong. Instead of the government simply saying, ‘Time out, you know, maybe we have been underestimating the cost and things aren’t quite right and the process is flawed and we should do this the right way,’ they’ve continued day by day, week by week, month by month, year by year, to continue down this insane road of deceit.”
NDP MP Matthew Kellway (Beaches-East York, Ont.), his party’s military procurement critic, said last week that the government is continuing to do an options analysis behind closed-doors, so nothing is different about this “reset” the Conservatives talk about.
“What they call a reset button is actually a repeat button because all they’ve done is they got called out on the carpet by the official opposition, by the parliamentary budget officer, by the auditor general, and they’ve had to come out and say okay, here’s a different costing for the plane. But as soon as they do that, they again retreat behind closed doors to do an options analysis, and so, there’s no reset here,” Mr. Kellway told The Hill Times.
At a press conference last Wednesday, Public Works deputy minister Michelle d’Auray said the analysis will be based on discussions with all aircraft manufacturers and that all information that can be publicly released will be.
“Any effects on the statement of operational requirement will be assessed once the work on the options analysis is complete. Industry Canada then provide an assessment of the potential industrial benefits associated with each option,” Ms. d’Auray said.
Mr. Kellway said, however, that the government should move immediately to a competitive procurement process.
“You set out what exactly are your requirements? You do it in a certain way so that it’s not wired to any particular outcome, and then on the basis of that set of requirements you establish an open, transparent competition to fill those requirements. That is the only way to reset this process.”
A lobbyist familiar with the procurement process told The Hill Times that one problem in moving to a competitive process is the battle between bureaucrats and politicians. “Don’t forget bureaucrats do not give up their mistakes easily. That is a major principle in the discipline of power. I see the bureaucrats hanging on to the F-35 in desperation with the politicians looking for a strategic retreat from the F-35,” the lobbyist said. “Don’t forget Public Works was in on the original decision to sole source. By law, all major procurements have to go through Public Works regardless of who the client department is. Moving it from DND to Public Works is just cosmetics and optics. The first battle will be the writing of statement of requirements. Departments tend to write these in favour of the product they want. Sometimes they even take language out of the product’s maintenance manual. I expect this is what DND will try to do. Whether Ambrose lets Public Works play along will be an interesting question.”
But Liberal MP John McKay (Scarborough-Guildwood, Ont.) said the final decision rests with politicians, and responsibility starts with the prime minister and minister.
“The minister’s expected to be an adult, the minister’s expected to provide supervision in the public interest. The minister’s supposed to have civilian oversight, that is the phrase, and it has not been exercised,” Mr. McKay said. “Obviously the minister has not applied his mind to connecting the wish list of DND with the capacity of a budget. All militaries fly, sail and march on their budget. This government just simply is unable or unwilling to reconcile the two.”
The Canadian federal government has so far spent $250-million on the Joint Strike Fighter Program, a consortium of eight countries in addition to the United States, as a tier three partner in the development of the F-35. It has committed an extra $750-million to the program. So far, Canadian companies have identified $435-million worth of industrial benefits to the aerospace sector. There are no penalties for withdrawing from the program.
Despite the difference in cost estimates, critics said last week the key issue here is to have a proper tendering process so that Canada gets the aircraft it needs at a good price.
“What we’re talking about here is the necessity to making the statement of requirements one in which the jets in the marketplace have a legitimate chance to compete in,” Mr. Williams said.
Mr. McKay agreed. “It speaks to all of what they [the Conservative government] claim to be their core competencies.”
Mr. Kellway said the F-35 could still win out if an open competition were held but it needs go through the process rather than being sole-sourced.
“I’m not asking them to take the F-35 off the table. The F-35 should be able to play in an open competition as well as any other airplane manufacturers. Give us what you got, how much it costs and we’ll have a look,” he said, noting that the government does not need to withdraw from the program’s memorandum of understanding in order to hold an open competition as the Netherlands is doing. “There’s no reason that Canada can’t do the same thing.”
Mr. Williams said that he has “no idea” which fighter jet is the best for Canada. “Nobody can say for certain until you go through a formal evaluation process.”
bvongdou@hilltimes.com
The Hill Times
The Conservative Government’s Seven-point Plan on the F-35 Procurement
1. Freeze the fund envelope allocation for F-35 acquisition (Canada remains a partner in the JSF program).
2. Establish a secretariat within Public Works (the National Fighter Procurement Secretariat was created in June 2012 whose deputy minister governance committee meets every two weeks).
3. Provide annual updates to Parliament from the Department of National Defence, tabled 60 days from receipt of costing forecasts from JSF program office.
4. Continue to evaluate options for Canadian Forces fighter capability.
5. Commission an independent review of DND’s F-35 cost forecasting (KMPG was awarded the contract on Sept. 7, 2012, and the government released the audit on Dec. 12).
6. Review acquisition and sustainment costs through Treasury Board Secretariat (a request for proposal went out on Oct. 26 for a firm to conduct an independent review of the steps taken up to June 2012 in the acquisition process).
7. Identify industrial benefits for Canada and provide updates to Parliament from Industry Canada (a report was tabled Dec. 12).
Highlights of KPMG’s report
Breakdown of life-cycle costs for the F-35:
Development $491,000,000
Acquisition $8,388,000,000
Operating $19,960,000,000
Sustainment $13,290,000,000
Risk provision (contingency) $2,648,000,000
Disposal $43,000,000
Total Life Cycle Cost Estimate $44,820,000,000
Attrition Aircraft $982,000,000
Total Life Cycle Cost Estimate
(including Attrition) $45,802,000,000
Price per F-35: US$87.4-million “The JSF Program Office is only approximately 50 per cent confident that actual costs will be at or below this level. … The contingency required to establish an appropriate risk adjusted estimate would range between $1.1-billion and $2.5-billion. DND’s current contingency provision of $602-million neither falls within this range, nor does it meet DND’s estimates for contingency of $1.5-billion based on current assessment of risk.”
Because the government has stated it will not spend more than $9-billion on the acquisition of new fighter jets, a reduced number of jets will be required. “This could reduce the initial fleet to as low as 55 aircraft, which is below DND’s current stated requirements,” the KPMG report says.
