Canada: The Parliament of Canada Act mandates the Parliamentary Budget Officer (PBO) to provide independent analysis to the Senate and House of Commons on the state of the nation’s finances, government estimates and trends in the national economy.
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.
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