Auditor general criticizes procurement of F-35 fighters [updated]

Report slams role of both Public Works and National Defence

April 3, 2012

OTTAWA: Public Works did not fully carry out its role as the government’s purchasing authority—and significant weaknesses existed in National Defence’s decision making—during the procurement of F-35 stealth fighters, according to Auditor General Michael Ferguson’s spring 2012 report. The document, tabled April 4, criticizes the government for not doing its pricing homework and failing to follow procurement rules in the largest ever military hardware purchase.

The Canadian Forces wants to buy 65 stealth fighters to replace the aging fleet of CF-18 jet fighters. The Conservative government says it will pay US$75 million per aircraft when it starts buying them in 2016, which critics say is too low by half.

The audit examines whether National Defence, Industry Canada and Public Works and Government Services Canada exercised due diligence in managing Canada’s participation in the Joint Strike Fighter Program, established to design, develop and manufacture the F-35 Lightning II aircraft. The audit also looked at the federal decision-making process to acquire the F-35 as a replacement for the CF-18.

“Our observations were around the fact that there were significant weaknesses around that process,” Ferguson said. For example, key steps were taken out of sequence during the lead-up to the 2010 announcement of the purchase, says the report. As well, key decisions were made without required approvals or supporting documentation. Although National Defence didn’t engage Public Works until late in the process, Public Works endorsed the decision to sole source the acquisition without required documentation and completed analyses.

National Defence did not provide complete information in a timely manner, the report goes on to say. As well, National Defence likely underestimated the life-cycle costs of the F-35. The budgets for the fighters and their upkeep (CAN$16 billion) were set in 2008 without the complete cost and other information. Some of that information will not be available until years from now.

“If the budgets prove insufficient to cover total costs, the Department will have to find ways to cover additional costs that may be incurred,” says the report. “Alternatively, it may have to seek additional funds from the government or use funds from other parts of its capital or operating budgets.”

As well, opposition critics have called for open competition to replace Canada’s fleet of CF-18 fleet. The US and Britain signed contracts for the delivery of early-production aircraft at between US$140 million and US$145 million each, but Canadian officials have long insisted the price will drop as the assembly line ramps up.