After the release of the PBO report “An Estimate of the Fiscal Impact of Canada’s Proposed Acquisition of the F-35 Lightning II Joint Strike Fighter”, the Department of National Defence (DND) provided a comparison of its figures with those of the PBO.

On 3 March 2011, DND informed the PBO that it had not yet undertaken a ‘detailed analysis of the entire project.’

Directly prior to the PBO’s report being released, DND provided its costs with respect to acquisition, initial logistics set-up, and operating and support, among others. However, DND did not provide details of its methodology, assumptions, uncertainties, or risks associated with these figures. Given this, the PBO is left to speculate as to the basis of the costs provided.

It appears that DND has relied upon the 2009 Selected Acquisition Report (SAR), published by the U.S. Department of Defense (DoD), as well as figures provided by the Joint Strike Fighter (JSF) Program Office. However, the reasonableness of relying on such figures might be questioned. The SAR was published in April of 2010. Since then, the JSF program has undergone two restructurings to address significant program delays and cost overruns, including a restructuring of the management of the JSF Program Office (see Nunn-McCurdy breach).

The PBO, on the other hand, uses a Cost Estimating Relationship (CER) model that incorporates thirty years of actual jet-fighter program data, including but not limited to the data found in the 2009 SAR. Other reports, such as that of the U.S. Government Accountability Office (GAO) released on 15 March 2011, show average unit acquisition costs to be in the same order of magnitude as the PBO estimates.

The PBO continues to stand by its forecast.

While DND has briefly provided the bureaucratic process it may follow regarding the F-35 procurement, it has yet to provide the key details of its methodology, assumptions, uncertainties, or risks associated with its figures. Nonetheless, the PBO has attempted to provide a response to some of the issues raised by DND with respect to differences in estimates.

Parliament must have access to financial data and analysis to support it in fulfilling its constitutional mandate to manage the public purse. To support Parliament in satisfying its constitutional mandate, this short paper addresses some of the key concerns or issues raised by DND with respect to the PBO’s forecast.

Title:	Comparing PBO and DND Cost Estimates on Canada’s Proposed Acquisition of the F-35 Joint Strike Fighter: Some Preliminary Questions and Answers on Key Issues
Date:	2011-03-25
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Download Link:	Comparing PBO and DND Cost Estimates on Canada’s Proposed Acquisition of the F-35 Joint Strike Fighter: Some Preliminary Questions and Answers on Key Issues

“As part of the Canada First Defence Strategy, this Government is committed to ensuring Canadian sailors have equipment at the ready to protect Canadian interests at home and abroad,” said the Honourable Peter MacKay, Minister of National Defence. “By awarding this contract, we continue to deliver the infrastructure that the members of the Canadian Forces require, and honour the importance of the diligent maintenance work our valuable fleet needs to maintain a first-class modern Navy”.

This project will provide Fleet Maintenance Facility (FMF) Cape Scott in Halifax with the capability to perform maintenance on two vessels at the same time. The project will entail upgrading the existing jetty’s electrical and mechanical mounts, which are required to support docking work periods on the Syncrolift. The project will also upgrade the Syncrolift’s five pairs of inshore winches, replacing associated support structures, transfer systems, and the electrical control system.

The permanent submarine maintenance facility will see the construction of a purpose built, robust facility on the shore adjacent to the Syncrolift. The new maintenance facility will allow FMF Cape Scott to perform maintenance in a more functional and controlled manner, providing a more efficient and safer working environment.

The Government of Canada conducted an open, fair, and transparent competitive process to award a contract for the construction of the Syncrolift upgrade project at CFB Halifax.

The Department of National Defence holds a large number of properties all across the country to support the Canadian Forces, including some 21,000 buildings, 2.25 million hectares of land, 5,500 km of roads, and 3,000 km of water, storm, and sewer pipes.
In line with the Canada First Defence Strategy, there is a need to update and replace dated defence infrastructure to meet the challenges of the 21st century. The Government’s significant investments in defence infrastructure provide economic benefits to communities across Canada.

“The Government of Canada is committed to building and maintaining an effective fleet of ships for maritime security and services,” said Minister Shea. “Bringing these vessels into the fleet has been a priority for some time. We are pleased to be moving forward with this project, and are gratified at the positive impact it will have on the local economy and community.”

A C$194 million contract for nine new mid-shore patrol vessels has been awarded to Irving Shipbuilding Inc., based in Halifax, Nova Scotia. Preliminary work will begin immediately. The first vessel should be ready for service in 2011. All nine vessels will be delivered by 2013.

“Our government is following through on its commitment to having federal ships built in Canada,” said Minister MacKay “This investment gives a significant boost to the Coast Guard fleet and to our shipbuilding industry – creating jobs and supporting local businesses.”

Through Canada's Industrial and Regional Benefits Policy, the Government will ensure that the maximum economic benefit to Canada is generated as a result of the purchase of these new ships.

“The IRB Policy is a key element of the government's procurement process,” said Industry Minister Tony Clement. “Canada's IRB Policy requires that 100% of this contract's value will be reinvested in Canada, creating opportunities, jobs and helping our long-term industrial development.”

Halifax Shipyard estimates up to 155 people will be employed by the project over the next four years. For the greater Halifax community this means an added C$35 million in payroll. As well, the company estimated that approximately 50 local Nova Scotian suppliers will benefit from about $32 million in purchases of local goods and services. This is in addition to 130 estimated suppliers from the rest of Canada.

“This contract is great news and the best tribute to the skill of the men and women at the Halifax Shipyard,” said Jim Irving, CEO of Irving Shipbuilding Inc. “This is truly a “Made in Canada” effort and we salute the Government of Canada's commitment to build at home.”

The new mid-shore patrol vessels will replace existing vessels nearing the end of their life expectancies. Five of the vessels will be used primarily to support Department of Fisheries and Oceans conservation and protection programs in the Maritimes, Quebec and Pacific Regions.

The other four vessels will be used in a joint program with the Royal Canadian Mounted Police to enhance the maritime security along the Great Lakes - St. Lawrence Seaway system.

“Recent investments, including C$175 million in projects funded through the Economic Action Plan, demonstrate the government's commitment to ensuring that the Coast Guard has the vessels it needs,” said Minister Shea. “Our Government recognizes the vital role the Coast Guard plays in supporting fisheries conservation and protection, and in maintaining the security of our coasts and waterways.”

At the recent Shipbuilding Forum, the Government of Canada renewed its commitment to building and maintaining an effective federal fleet of ships for maritime security and services. In making these investments, the Government will support a vibrant shipbuilding industry while also ensuring high standards of quality and value for taxpayers' money.

In addition to purchasing 15 helicopters, this project will involve a 20-years in-service support and maintenance contract valued at approximately $2.2 billion, with an option to extend the contract to the life expectancy of the aircraft.

“This contract ensures the Canadian Forces are a first class, modern, flexible force capable of defending Canada and Canadian interests at home and abroad,” said Minister MacKay. “These helicopters are key to keeping Canadians safe and secure by giving our military a robust ability to operate in remote and isolated areas and respond to disasters or missions both at home and abroad.”

According to an independent analysis, this acquisition contract is expected to generate benefits for local economies and will provide approximately 5,500 jobs and an opportunity for up to 15,000 indirect jobs for Canadians across the country.

“The Government of Canada’s Industrial and Regional Benefits Policy is in place to ensure that prime contractors generate long-term and significant economic activity in Canada,” said Minister Clement. “Our Government is committed to generating the greatest amount of economic benefit for Canadian industry and the economy at large”

As a result of the industrial and regional benefits requirements within the CH-147F project contract, Boeing has committed to re-invest the full contract amount into the Canadian economy, creating jobs and stimulating regional markets. As part of this commitment, Boeing has awarded a contract to IMP Aerospace to manufacture key components of Boeing’s Chinook cargo helicopters, including the 15 aircraft being purchased by the Government of Canada.

The purchase of the CH-147F Chinooks gives the Canadian Forces a new ability to reach remote locations in a wider range of geographic areas and challenging environments inaccessible by land transport or fixed-wing aircraft. These helicopters are invaluable assets in responding to natural disasters and while deployed anywhere in the world.

Delivery of the first aircraft is expected in July 2013.

As the contract was negotiated in US dollars, the Canadian dollar value of the purchase of these helicopters was calculated using the August 5, 2009, Bank of Canada exchange rate of 1.00USD = $1.072CAN.

“As a result of a fair, open and transparent competition, we now have a contract to provide SUAV services that our Canadian Forces will be able to use in Afghanistan and beyond,” said Minister Paradis. “We moved quickly last summer to meet our short-term needs,” he added. “This procurement will not only add to the SUAV fleet for our Forces, but will provide best value for Canadian taxpayers while stimulating our economy.”

“The Canadian Forces’ UAV capability directly contributes to the safety and protection of our troops deployed on operations,” added Minister MacKay. “The awarding of this contract will help ensure that the men and women of the Canadian Forces are provided with the necessary support to sustain this important capability in current operations in Afghanistan, and into the future.”

As part of the Request for Proposal, Insitu Inc. must provide 100 percent industrial and regional benefits. This means that Insitu Inc. will boost the Canadian economy by generating one dollar of economic activity in Canada for every dollar it receives from the contract.

Canada’s Industrial and Regional Benefits Policy applies to this procurement. As such, Insitu Inc. is required to undertake high quality and advanced-technology business activities in Canada in an amount equal to 100 percent of the contract value. This means that the company will invest one dollar of economic activity in Canada for every dollar it receives from the contract.

“The Government of Canada remains committed to generate the greatest amount of economic benefit to Canadian industry and the economy at large through its major defence procurements,” said Minister Clement. “Canada’s Industrial Regional Benefits Policy is in place to ensure that prime contractors encourage long-term industrial development and generate significant economic activity in Canada.”

Background Information
The Government of Canada is actively procuring the equipment needed to support urgent operational requirements in Afghanistan.

On April 3, 2009, on behalf of DND, PWGSC awarded a contract to Insitu Inc. of Bingen, Washington, USA, to provide the Canadian Forces with services for Small Unmanned Aerial Vehicles (SUAVs).

This contract, awarded for one year, with two one-year options, provides for SUAV turnkey services that include: training Forces personnel; maintenance personnel; repair, technical and engineering support; and integrated logistics support. The services also include launching the SUAVs and performing post takeoff checks before providing them to CF personnel for operational missions. Once the missions are complete, the contractor will recover the SUAVs to prepare them for their next mission.

This contract, with an estimated value of US $30 million for the initial one-year period, is in addition to two other separate earlier procurements announced in August 2008. These procurements were undertaken to ensure that the Canadian Forces deployed in Afghanistan would have the equipment they needed, well in advance of the February 2009 deadline to meet recommendations of the Independent Panel on Canada's Future Role in Afghanistan, also known as the Manley Report.

First, the Government awarded a contract to The Boeing Company to provide SUAV services on an interim basis. This contract provided for a turnkey service spanning less than one year. This equipment has been in the field since July 2008.

Second, PWGSC worked closely with DND on a competitive procurement called Project NOCTUA to lease Unmanned Aerial Vehicle (UAV) services for a two-year period, with an additional one-year option. The contract was awarded to MacDonald Dettwiler and Associates LTD as a result of an open, transparent and competitive process.

This allowed for the approach resulting in today’s contract. The government obtained the equipment it needed as quickly as possible to protect Canadian troops, while this new competitive process was undertaken to ensure best value for Canadian taxpayers and ensure continued capability with the new contract being awarded today.

The Industrial and Regional Benefits (IRB) Policy is an important component of the Government of Canada’s overall procurement process for major Crown purchases. The IRB Policy enables the Government of Canada to leverage major government procurements to create long-term industrial development and to generate significant economic activity in Canada.

The Policy ensures that successful prime contractors undertake high-quality, high-technology work in Canada, equivalent to 100 percent of the contract value, with lasting economic benefit.

The ECM System, which is an integral and critical component of the vessels’ anti-missile defence, is made up of shipboard launchers and rounds used to counter radar-guided missiles.

“This government continues to deliver leading-edge technology for the Canadian Forces and concrete results for our economy,” said Minister Paradis.

“The safety and security of our forces is paramount on any operation,” said Minister MacKay. “The replacement of these SHIELD systems will ensure that Canada’s Halifax Class Frigates and their crews have a top-shelf defensive capability to protect themselves, while protecting Canadian interests at home and abroad.”

The five-year contract will provide for the design, manufacturing, documentation, training and engineering support of the ECM System.

The Industrial and Regional Benefit (IRB) Policy applies to this procurement. It requires that the contractor undertake business activities in Canada valued at 100 per cent of the contract value and thereby ensures that federal defence procurements will generate long-term industrial and regional development in Canada.

“I am pleased that through the IRB Policy, every contract dollar awarded is re-invested back into the Canadian economy,” stated Minister Clement, “The contractor has committed to generating high quality and lasting economic activity in the Canadian economy.”

Nunalivut, Inuktitut for “land that is ours,” focuses on military operations in the High Arctic and will also involve air surveillance patrols and parachute insertions of search and rescue technicians.

“Operation Nunalivut is but one example of how the Government of Canada actively and routinely exercises its sovereignty in the North,” said Minister MacKay. “The Canadian Forces play an important role in achieving our goals in the North, which is why the Government of Canada is making sure they have the tools they need to carry out a full range of tasks in the Arctic, including surveillance, sovereignty, and search-and-rescue operations.”

“The North represents 40 per cent of Canada's land mass and is Canada Command’s single biggest region,” said Vice-Admiral Dean McFadden, Commander of Canada Command, the CF’s lead organisation for domestic and continental operations. “In keeping with the Canada First Defence Strategy, we are placing greater emphasis on our northern operations, including in the High Arctic. This operation underscores the value of the Canadian Rangers, our eyes and ears in the North, which at the direction of the Government are growing to 5 000 in strength.”

“This operation is a golden opportunity to expand our capabilities to operate in Canada’s Arctic,” said Brigadier-General David Millar, the Commander of Joint Task Force North, the regional military command responsible for Canadian Forces operations north of the 60th parallel, headquartered in Yellowknife, N.W.T. “In addition to air and ground patrols, this operation calls on a range of supporting military capabilities–communications, intelligence, mapping, and satellite imaging.”

Including deployment phases, the operation will run from March 30th to April 20th, with patrols by the Canadian Rangers ending in Eureka, Ellesmere Island, on April 17th.

Notably, this year's operation will involve an exchange visit with the Commander of Greenland Command, Danish Rear-Admiral Henrik Kudsk, to discuss military collaboration in the North. During the operation, Canadian Rangers will be testing commercial GPS technology as a means to track Arctic patrols. Air patrols will be conducted by CC-138 Twin Otters from 440 Squadron, which is based in Yellowknife, N.W.T.

Canada Command's six regional commands, including Joint Task Force North, monitor developments across the country on a continuous basis and stand ready to deploy the Canadian Forces when and where they are needed. Defending Canadians at home is the Command's primary mission.