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Dec 12

From MILNEWS.ca at Milnet.ca (great fast work):

Finally for everyone interested in the docs themselves, this from the PWGSC Info-machine:

 

Quote

…. The (National Fighter Procurement) Secretariat released the following documents today:

•National Fighter Procurement Secretariat’s Seven-Point Plan: Status Report;
Terms of Reference for the evaluation of options to sustain a Canadian Forces fighter capability. This new evaluation of options will review and assess available fighter aircraft, and each option will be evaluated against the roles and missions of the Canada First Defence Strategy;
National Defence’s Annual Update, setting out comprehensive life-cycle cost estimates for the F-35;
•KPMG’s independent review of those costs, which establishes (1) a comprehensive life-cycle framework for reporting costs, and (2) the review of the National Defence Annual Update; and
•Industry Canada’s report on Canadian Industrial Participation in the Joint Strike Fighter Program ….

Earlier:

DND F-35 Media Monitoring, Industrial Benefits, Other Fighters’ Costs

Mark Collins is a prolific Ottawa blogger

11 Responses to “Mark Collins - F-35 and New Canadian Government Documents on Fighter Procurement”

  1. MarkOttawa Says:

    1) DND Figures on Canadian F-35 URF costs‏–Scroll down to Table 2 here:
    http://www.forces.gc.ca/site/reports-rapports/ngfc-cng/index-eng.asp#4vi

    2) F-35 Acquisition costs uncertainty–scroll down here:
    http://www.forces.gc.ca/site/reports-rapports/ngfc-cng/index-eng.asp#4vii

    Mark Collins

  2. MarkOttawa Says:

    New fighter options analysis terms of reference–looks very loaded on RCAF side and they want the F-35–scroll down to “The Committee”:
    http://www.tpsgc-pwgsc.gc.ca/app-acq/stamgp-lamsmp/torcc-torcf-eng.html

    Mark Collins

  3. milnews_ca Says:

    Maybe TOO fast on my part - here’s the correct link to the “review of the National Defence Annual Update”
    http://www.tbs-sct.gc.ca/reports-rapports/ngfc-cng/irlc-eiccv/irlc-eiccvtb-eng.asp

  4. MarkOttawa Says:

    Another very relevant bit, from the KPMG report itself–note “Based on the currently projected order profile for Canada and JSF Program Office unit costs, the weighted average US price is approximately $87.4 million USD in Budget Year. This weighted average unit cost of the F-35 is reflective of a confidence level of approximately 50%”

    “…
    3.4.2.2 Acquisition Cost

    The cost estimates within Acquisition include the funding required up to the end of the Implementation Phase of the program. The primary driver of acquisition cost (71% of $8,388 million) is the Unit Recurrent Flyaway (forex) cost that is composed of the following key elements:

    Airframe
    Vehicle Systems
    Mission Systems
    Propulsion Systems
    Engineering Change Orders.

    At the time of writing, consistent with similar projects at the Options Analysis phase, no approved master schedule was available for this Program. We understand that during the next phase of the NGFC project a more detailed schedule will be developed following a series of studies designed to provide greater understandings of interdependencies and activities that will need to be completed. We therefore depended on schedule and key dates information from the Project Charter, draft Project Management Plan for Definition Phase See footnote 7 and the NGFC Project Management Plan See footnote 8. Schedule alignment is a component of Acquisition cost as it identifies when planned acquisition will take place and at what estimated cost.

    Unit Recurrent Flyaway Costs

    Canada, and other partners, are solely reliant on the JSF Program Office for unit costs. The latest estimates now incorporate knowledge from actual construction costs of some 25 aircraft See footnote 9 that have been delivered. Based on the currently projected order profile for Canada and JSF Program Office unit costs, the weighted average US price is approximately $87.4 million USD in Budget Year. This weighted average unit cost of the F-35 is reflective of a confidence level of approximately 50% See footnote 10, which is typical of a baseline estimate.

    It should be noted that the confidence level may not reflect all acquisition risks specific to Canada. As an example, additional risks related to potential future changes in the production demand profile and foreign exchange could impact Canada. In other words, to achieve a 50 percent confidence level for the Canadian URF cost estimate, additional contingency to reflect Canadian risk factors may be required.

    Our review of the URF cost estimate did not identify any significant quantifiable differences in DND’s application of the Framework.

    Upgrades

    The Canadian F-35s being considered would be delivered with Block Upgrade 3 as part of the Acquisition costs. We understand that DND will participate in all future Block Upgrades. The costs for these future Block Upgrades have been included in the Sustainment component of the Estimate in line item “Overhaul/ Rework”. This cost data has been supplied by the JSF Program Office and is the most current supplied to JSF Partners…”
    http://www.tbs-sct.gc.ca/reports-rapports/ngfc-cng/irlc-eiccv/irlc-eiccv03-eng.asp#ToC3422

    Seeing as we’re talking about acquisition/acquisition (rather than sustainment) costs of a supposedly fully operational fighter, will that Block Upgrade 3 really be good to go? As opposed to buying an already fully developed fighter that would not require upgrade costs perhaps so soon?

    Mark Collins

  5. MarkOttawa Says:

    An important point from Andrew Coyne, one of our sharpest journalists and generally considered small “c”:

    ‘The federal government’s continuing spin on F-35 costs is inexcusable

    So, just to be clear, they’re still spinning us. Even now. Even after all that has gone before, even with the release of its own specially commissioned independent review by the accounting firm of KPMG, the Conservative government still can’t bring itself to tell us the whole truth about the costs of the F-35.

    I’ll leave others to try to figure out the rest: whether there will be a truly open competition now that the original sole-source contract is dead, whether Canadian firms will still be able to bid on F-35 work if we don’t buy it, and so on. I’d just like to focus on the comparatively simple question of how much these planes really cost, and why it matters…

    The new line, as expressed in government documents and repeated by the Defence minister, Peter MacKay, is that the planes will cost $45.8-billion “over 42 years.” Not 20 years, or 30 years, but 42 years. And then the spin: it was a billion dollars a year before, it’s pretty much a billion dollars a years now. So you see? Nothing’s changed.

    Except it isn’t 42 years. Not in any comparable sense. The 20 years used in previous cost estimates was the (supposed) service life of the planes: that is, how long they’re expected to be in use, after delivery. KMPG’s report, as I said, assumed a service life of 30 years. So to compare apples to apples, you would have to say the planes are now projected to cost $45-billion over 30 years.

    How does the government get 42 years? By adding in 12 years for “development and acquisition,” from the decision to acquire the planes in 2010 to the delivery of the last plane in 2022. No previous estimate included development costs. And indeed they add next to nothing to the total: just $565-million. But by tacking on another 12 years, they allow the government to spread the cost over a much longer time frame, and make the annual cost of the planes seem much lower than it is…’
    http://fullcomment.nationalpost.com/2012/12/12/andrew-coyne-the-federal-governments-continuing-spin-on-f-35-costs-is-inexcusable/

    Meanwhile the Conference of Defence Associations Institute tries to put an objectively fairly positive take on things:

    “Analysis of the KPMG Audit of the F35 Costing Data”‏
    http://cda-cdai.ca/cdai/uploads/cdai/cdai_analysis_f35_dec2012.pdf

    Key questions:

    “- Had the Government committed to acquiring the F-35?

    - Did DND conduct a fair options analysis of fighter aircraft to inform decision-makers?

    - Was the Government certain as to the acquisition cost of the airplane - including costs per aircraft?

    - What was the life-cycle of the aircraft?

    - Were Operating and Support costs correct?”
    http://campaign.r20.constantcontact.com/render?llr=kfpzotfab&v=001FWOIEyOKRSJHqygu36VLx7SAab8c2JNP0IcpzGX6qQwc70e4e0xAJn-b2lNY1QPgqtlRvlg6Wr6XVATwVY_g76xWKCzv9rn1lxkbfWF-lBW2OyNKHo37JF_i1aOcPVKv3CmZRp-VhRA%3D

    Mark Collins

  6. MarkOttawa Says:

    Very much worth noting, given the acquisition cost uncertainties mentioned at 4. above–maybe fewer than 65 F-35s, er, new fighters (and note problems with such numbers pointed out at end of this comment):

    ‘…
    MacKay and senior government officials insisted they can get the jets they want within the budget envelope.

    “The estimate of $9 billion stands,” MacKay said. “It’s been sound.”

    The other alternative would be to slash the number of planes and that is the alternative the air force is expecting to swallow, according to its annual update written on Nov. 26, 2012.

    “DND has advised that their risk-mitigation strategy for acquisition costs, to remain within a $9-billion ceiling, is to reduce the number of aircraft acquired,” said the KPMG analysis.

    “As a result, based on their own calculations of potential contingency required, this could reduce the initial fleet to as low as 55 aircraft, which is below DND’s current stated requirement.”..’
    http://www.winnipegfreepress.com/canada/cost-analysis-could-spell-end-for-f-35-program-183305621.html

    Or as the CDAI paper puts it (p. 4):

    “…despite rising Unit Recurring Flyaway Costs, the estimates for some of the other initial acquisition costs have been reduced, such as those allocated to infrastructure and initial ammunition purchases. As well, funds allocated to provide Canadian-specific design modifications, including a drag chute and refueling probe, are no longer included [HUH? WHY?]. Finally, the estimate includes only $602m for contingency and notes that this “constitutes a contingency shortfall of approximately $848million” as the contingency amount was “capped by Government policy.” If in future costs exceed monies set aside for contingencies Canada will acquire fewer than 65 fighters…’
    http://cda-cdai.ca/cdai/uploads/cdai/cdai_analysis_f35_dec2012.pdf

    Now any number below 65 is very problematic indeed–from an earlier post, with further links:

    “…Remember 65 is the minimum number including our NORAD commitments, more here–plus this:

    ‘…Canada is committed to providing at least 36 fighters for North American air defence and when normal maintenance cycles are included, the government’s purchase leaves few jets available for overseas missions [such as seven for Libya, see Trapani Detachment]…’”
    http://www.cdfai.org/the3dsblog/?p=884

    Mark Collins

  7. MarkOttawa Says:

    Two stories worth the look:

    “Fighter jet plan ‘reset’ as F-35 costs soar
    F-35 isn’t dead yet, but on life-support with costs set at $45.8B over 42 years”
    http://www.cbc.ca/news/canada/story/2012/12/12/pol-f-35-kpmg-report-release.html

    “F-35 fighter more dangerous to governments than any potential enemy

    …the procurement system in Canada is badly broken and has been for two decades at least. To begin with, there is no transparency in the process. The system is opaque from top to bottom. So, whether it’s ship-board helicopters,
    [ http://www.cdfai.org/the3dsblog/?p=1334 ]
    armoured fighting vehicles,
    [ http://www.cdfai.org/the3dsblog/?p=1518 ]
    or even trucks,
    [ http://www.cdfai.org/the3dsblog/?p=1311 ]
    no one but an omniscient procurement genius can ever know quite what’s going on with any project at any given moment.

    To make matters worse, Canadians in general simply don’t care enough about defence to learn why the procurement process is such a mess and to demand that it be fixed. Yes, the F-35 is a fiasco, but the new fixed-wing search-and-rescue aircraft that was promised more than a decade ago and is still probably another half decade away from delivery is no less a fiasco, though potentially a much cheaper one.
    [ http://www.cdfai.org/the3dsblog/?p=1512
    http://www.cdfai.org/the3dsblog/?p=1643 ]
    And where are the headlines about that?

    David Bercuson is a senior research fellow of the Canadian Defence and Foreign Affairs Institute.
    http://www.cdfai.org/seniorfellows.htm#Bercuson”
    http://www.theglobeandmail.com/commentary/f-35-fighter-more-dangerous-to-governments-than-any-potential-enemy/article6299878/?ord=1

    Plus the invaluable, regularly updated DID article:

    “Canada Preparing to Replace its CF-18 Hornets”
    http://www.defenseindustrydaily.com/Canada-Preparing-to-Replace-its-CF-18-Hornets-05739/

    Mark Collins

  8. MarkOttawa Says:

    Further to Mr Bercuson, very much to the point by E.R. Campbell at Milnet.ca:

    ‘…Journalists understand what David Bercuson said in the Globe and Mail: Canadians neither know nor care very much about national defence or military equipment, but they know that they don’t like to spend money - especially not on symphony orchestras or the military. Journalists also know that they can use the F-35 debacle - and I think ALL major defence procurement projects are debacles: mismanaged in and by a system that is designed to waste resources - to attack the government’s main “message:” you can trust us to manage the economy.

    I don’t know what aircraft we will get; I don’t think Stephen Harper cares what aircraft we will get; this - replacing the CF-18 - is now a political problem and the four person panel is the PM’s preferred route towards a solution. If they say Saab Gripen E then that’s what the RCAF will fly - in whatever quantities we can get for n billion dollars over nn years…’
    http://forums.milnet.ca/forums/index.php/topic,22809.msg1194810.html#msg1194810

    Mark Collins

  9. MarkOttawa Says:

    The blogger “The Sixth Estate” is very critical of the Conservative government (and the major media) from a “progressive” standpoint. He also does some good and serious research, as I think this post demonstrates with very thought-provoking figures–anyone care to counter them?

    “New F-35 Numbers Based on 40% Cut in F-35 Flight Hours, Still Hiding Billions of Dollars”
    http://sixthestate.net/?p=7310

    Mark Collins

  10. MarkOttawa Says:

    And from MILNEWS.ca’s “What’s Canada Buying?”:
    http://milnewsca.wordpress.com/2012/12/14/wcb-141715utc-dec-12/

    ‘…
    F-35 Tug o’ War (1b) Speaking of costs, Aussie defence blogger Eric Palmer [a fierce critic of the program] on “Canada still confused about acquisition costs for F-35
    http://elpdefensenews.blogspot.com.au/2012/12/canada-still-confused-about-acquisition.html

    Mark Collins

  11. MarkOttawa Says:

    A very good point by E.R. Campbell at Milnet.ca:

    ‘Please remember: there is no such thing as an industrial benefit! We, Canadian taxpayers, pay 100%, usually more like 120% for each and every “offset.” It has been like that since the “offset” thing started back in the 1970s (with the CP-140 project, as I recall) (I was in DLR at the time.) There is no free lunch and arms producers are not charitable organizations. Regional industrial benefits, etc, etc, etc, are ALL scams - without exception - perpetrated by politicians, bureaucrats (including those in uniform) and marketers on the public.’
    http://forums.milnet.ca/forums/index.php/topic,22809.msg1195130.html#msg1195130

    That’s for “traditional” one-for-one IRBs:
    http://www.ic.gc.ca/eic/site/042.nsf/eng/home

    Of course the Canadian government’s approach to the F-35 program (started under the Liberals) is very differen:
    http://www.ic.gc.ca/eic/site/ad-ad.nsf/eng/ad03863.html

    What Industry Canada is now saying:

    “…The Government of Canada currently uses an estimate that is based on information provided by the prime contractors of the Program (Lockheed Martin [hah!] and Pratt & Whitney) indicating what they see as the value of identified opportunities for which companies in Canada will be able to compete. According to the most recent estimates provided to Industry Canada, the value of contracts already secured by companies in Canada ($438 million USD), as well as currently identified opportunities (up to $9.328 billion USD), is up to $9.766 billion USD…”
    http://www.ic.gc.ca/eic/site/ad-ad.nsf/eng/ad03962.html#a2

    Sure that $9B plus figure will be borne out by reality. And get this:

    “…
    4. Future Industrial Participation Prospects

    …a key factor is that future value projections are based upon the production of the anticipated partner fleet of 3,100 aircraft [good flipping luck with that]. Any significant change in the partner nations’ acquisition quantities could affect these projections. Similarly, non-partner acquisitions of the F-35 JSF — for instance those of Israel and Japan —could affect the amount of work going to companies in Canada [at least some honest there]…”
    http://www.ic.gc.ca/eic/site/ad-ad.nsf/eng/ad03962.html#a3C4

    As I’ve been pointing out: how come non-partner countries can if effect take work away from the (suckers!) partners:

    “Japan’s F-35 Work: Tough Luck for Partner Countries”
    http://www.cdfai.org/the3dsblog/?p=1581

    Mark Collins

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