Wednesday, September 15, 2010

A big hitch in the government's F-35 purchase plan

Public Works Minister Rona Ambrose gets pretty much a freebie to spread the government's distorted F-35 position in this Postmedia report. The report comes as the F-35 purchase begins to be discussed at a Commons committee today. Might be a much more interesting day now. Industry Minister Tony Clement will be appearing and it looks like he's got a doozy of a new wrinkle to defend. Le Devoir is reporting that the industrial benefits that typically come along with these major contracts will no longer be guaranteed if we proceed with a sole-sourced $9 billion contract with Lockheed Martin. That changes the equation on this story in a big way.

Some of the criticism on the sole-sourcing to date has pointed out that a competitive process on the fighter jet replacements would actually gain more in industrial benefits than under the present route, the sole-sourcing with Lockheed Martin. For example, see this critique which explains how the industrial benefit plan typically works:

Second, ministers say that the government is buying the JSF in order to provide Canadian industry with the opportunity to compete for $12 billion in contracts. Angus Watt makes the statement, "The benefits for Canadian industry associated with the F-35 are staggering."

The fact is these potential benefits pale in comparison with the guaranteed benefits that would accrue to Canadian industry through a competition. In a competition of this size all bidders would be required to provide an Industrial and Regional Benefit plan as part of their bid. This plan would require each bidder to provide a guarantee of benefits equal to or greater than the value of the contract. The total value of the acquisition and support costs would likely be in the $20-$30 billion dollar range. It is this value that would be guaranteed to Canadian industry through a competitive process. As a point of information, to date, Canadian industry has been hugely successful. For our $150-million investment in the JSF program, our industry has garnered over $400 million in business. (emphasis added)

But, it looks like the Conservatives are giving up on the typical way these contracts have worked, with that "guarantee of benefits," as described above. No more, it's going to be open competition for F-35 work among businesses in all the F-35 nations. That's a big change.

There was more on the folly of sole-sourcing from DND sources making news just yesterday:
“The sole-sourcing was stupid. It was in the country’s interests to hold an open competition and invite four manufacturers to hawk their wares. We didn’t go through this process. [Defence Minister] Peter MacKay says there was a competition, but there was only an internal study. That means we’ll never be able to determine how much they would have reduced their price or the scope of industrial benefits they would have offered,” said one DND insider.

...he admitted that the taxpayer may not have received the best deal possible because of the absence of an open bidding process. He pointed out that a competition in Brazil for 36 fighter jets between France’s Dassault Aviation’s Rafale, Swedish firm Saab’s Gripen and Boeing’s F-18 SuperHornet has reportedly seen the price come down and the technology transfer to Brazil go up. The French bid, which looks favourite even though it is not the lowest price, has dropped $2-billion to $6-billion, according to published reports.
So if Le Devoir is right, this lack of a competitive process is set to become an even bigger issue given that we are apparently foregoing, for the first time - on the largest military purchase in Canadian history - the industrial benefit policy of the government of Canada. The appearance is going to be that the Harper Conservatives are caving to Lockheed Martin's requirements.

This perception of letting the U.S. dictate on the F-35s is already sinking in because the Conservatives are arguing there's no need for a competitive bid process at all, there's already been one, the American one that occurred in 2001. Ambrose restates that in the Postmedia report. But as this former assistant deputy minister at defence and public works put it:
“The fact there was a U.S. competition for who should build the aircraft has nothing to do with which aircraft 15 or 20 years later would best meet the needs of our Canadian military. They are totally different animals and to link the two is absurd,” he told the Star.
Canada should choose its jets and needs and procurement policies. Not the U.S. That is a real problem, politically, with the Harper government's approach here. This new decision to forego the matching industrial benefit investments will not help that perception.

Kind of puts a whole new spin on the Harper ministers fanning out across the nation today, in an offensive move to tout current F-35 industrial contracts:
The government is pushing back, highlighting industrial benefits Wednesday by sending five other cabinet ministers to hold news conferences at companies with F-35 supply contracts in Montreal, Burlington, Ont., Winnipeg, Vancouver and Lunenberg, N.S.
Those existing contracts are there because we paid for the right to bid on them in a 2006 agreement, separate and apart from any future purchase of jets.

The Conservatives are fighting hard on this issue because they are vulnerable on it. $16 billion in jet fighters plus servicing costs has got to be shaping up as a big, expensive sell when jets likely don't make a top 10 list for most Canadians. Throw in that it's being presented as a my way or the highway Harper special, without a Canadian competition having occurred. And now with news of no guaranteed industrial benefits, it's an even tougher sell.

This issue is not about Liberals, as Ambrose, Harper, et al. would like you to believe. It's about asking the right questions, doing what's right for Canada and proving you have through a process that has integrity. That hasn't happened and now there are these additional major questions about proceeding on a sole-sourced basis. It just doesn't seem like the way a government should be going about spending our money, especially on such an epic scale of $16 billion.