Bloomberg News

Canada Says It Won’t Buy F-35 Planes Before Oversight Rules

April 03, 2012

Canada said it will strengthen oversight of plans to buy Lockheed Martin Corp. (LMT:US)’s F-35 fighter jets after the country’s top auditor said defense officials mismanaged the purchase.

The Department of National Defence was “too involved” with the development of the F-35 program to run a fair competition for new fighter jets, Auditor General Michael Ferguson said in a report released today. Defense officials didn’t provide complete cost information to members of the nation’s parliament or fully inform decision makers about the risks of buying the jets, Ferguson said in his report.

The government agrees with the audit’s recommendation to change its estimate of the “full life-cycle” cost of the jets, and to make the figure public, cabinet ministers including Defence Minister Peter MacKay said in a news release in response to the audit. The government will establish a secretariat within the public-works department to coordinate the purchase.

The F-35 fighter jet will cost $1.51 trillion to develop, an increase of 9 percent from the estimate a year ago, Pentagon officials said March 30. The projected “life-cycle” costs include development since 1994, production of 2,443 jets and 55 years of support, the Pentagon said.

Canadian defense officials “likely underestimated” the full costs of the F-35s throughout their life cycle, according to the audit. The project’s budget was set at C$25 billion ($25 billion) over 20 years in 2008, including C$9 billion to buy the jets and C$16 billion to operate and maintain them.

‘Not Managed Well’

The defense department “applied the rules for standard procurement but prepared key documents and took key steps out of proper sequence,” Ferguson said in his statement. “As a result, the process was inefficient and not managed well,” he said, adding that “key decisions were made without required approvals or supporting documentation.”

The defense department didn’t engage officials at public works, the department that typically oversees procurement, until late in the decision-making process, the audit found. Public works officials endorsed the decision to acquire the jets on a sole-source basis without required documentation and complete analysis, Ferguson’s office said.

A committee of senior bureaucrats will oversee the F-35 secretariat, the government said. The defense department will be required to provide annual updates to parliament.

The government said it will not buy new planes until the reforms are in place, adding that it remains “committed” to ensuring the country’s air force has the aircraft it needs.

Funding Frozen

“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,” Public-Works Minister Rona Ambrose said in a statement.

“Lockheed Martin fully supports the Government of Canada’s response to its Auditor General of Canada 2012 Report,” company spokesman Michael Rein, said in an e-mail. “We continue to look forward to supporting the Canadian government.”

Canada is prepared to delay the acquisition of F-35s and take other steps to keep costs in check, Associate Defence Minister Julian Fantino said March 16. “Our intention is to receive the F-35 when it is most cost effective and the development is complete,” Fantino said, adding that “all options are on the table.”

Canada is one of several countries, along with the U.S., looking at buying F-35s. Canadian defense officials have been involved with Lockheed’s “joint strike fighter” program since 1997. Canada signed memorandums of understanding to participate in the program in 1997, 2002 and 2006.

The government announced in July 2010 that it would buy 65 F-35s to replace the country’s aging fleet of CF-18 Hornet jets.

“The government knew the F-35s were going to cost more than anticipated - but they intentionally hid it from Parliament and the public,” said Christine Moore, a lawmaker with the main opposition New Democratic Party, in a statement.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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    • $167.87 USD
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