By Aaron Wherry - Tuesday, January 22, 2013 - 0 Comments
You might have thought that the auditor general’s report and the KPMG audit amounted to a repudiation of the Harper government’s accounting for the F-35. Gary Goodyear would like to assure you otherwise.
“I can tell you the F-35 is another file – now we see KPMG come out with a report that couldn’t be more plain and simple – that Conservatives were dead right and that those planes would cost $9 billion and that the service contract for 20 years would be $16 billion.”
Granted, this is all a bit confusing, but let’s go over this one more time. The stated acquisition cost does, indeed, remain at $9 billion: that’s the budget the government says it will adhere to in purchasing new fighter jets. But $16 billion was once thought to be the total cost for acquisition and maintenance—in March 2011, the government tabled an estimate of $14.7 billion. The KPMG audit, meanwhile, identified $15.2 billion in “sustainment” costs, in addition to that $9 billion for acquisition.
But the “life-cycle” cost estimate was a particular concern of the auditor general and here, so far as the math is concerned, is the real trouble.
Treasury Board policies require consideration of all relevant costs over the useful life of equipment, not just the initial acquisition or basic contract cost. Careful planning and full costing are needed to ensure that all of the elements required to provide the needed capability come together in a timely and predictable way and that adequate funds are available to support the equipment over the long term. We examined whether National Defence conducted full life-cycle costing related to its Next Generation Fighter Capability project and whether cost estimates were complete, supported, and validated, using the best information available at the time. Estimating future full life-cycle costs for military equipment, especially the F-35, is challenging…
We have a number of observations regarding the life-cycle costing for the F-35. First, costs have not been fully presented in relation to the life of the aircraft. The estimated life expectancy of the F-35 is about 8,000 flying hours, or about 36 years based on predicted usage. National Defence plans to operate the fleet for at least that long. It is able to estimate costs over 36 years. We recognize that long-term estimates are highly sensitive to assumptions about future costs as well as to currency exchange rates. However, in presenting costs to government decision makers and to Parliament, National Defence estimated life-cycle costs over 20 years. This practice understates operating, personnel, and sustainment costs, as well as some capital costs, because the time period is shorter than the aircraft’s estimated life expectancy. The JSF Program Office provided National Defence with projected sustainment costs over 36 years…
We also have significant concerns about the completeness of cost information provided to parliamentarians. In March 2011, National Defence responded publicly to the Parliamentary Budget Officer’s report. This response did not include estimated operating, personnel, or ongoing training costs (Exhibit 2.6). Also, we observed that National Defence told parliamentarians that cost data provided by US authorities had been validated by US experts and partner countries, which was not accurate at the time. At the time of its response, National Defence knew the costs were likely to increase but did not so inform parliamentarians.
As Andrew Coyne has pointed out, National Defence agreed with the auditor general in 2010, on a separate file, that life-cycle costing was appropriate.
As noted above, in responding to the parliamentary budget officer, the government tabled an estimate of $14.7 billion over 20 years for capital, acquisition and sustainment costs.
According to the auditor general, National Defence had an internal estimate in June 2010 that covered capital, acquisition, maintenance, personnel and operating costs over 20 years. That estimate came to $25.1 billion. (Andrew has noted that a $25 billion estimate was briefly, and fleetingly, acknowledged in June 2010, only to disappear from the debate soon thereafter.)
According to KPMG, an estimate that covers capital, acquisition, maintenance, personnel, operating and development costs comes to $45.8 billion over 42 years.
So we have three sets of numbers: $15 to $16 billion over 20 years (the publicly debated cost), $25.1 billion over 20 years (National Defence’s internal estimate) and $45.8 billion over 42 years (the KPMG estimate).
But as Andrew has argued, it is difficult to compare the KPMG estimate to the previously acknowledged estimate because the KPMG audit includes money and time for development. If you remove the development figures from the KPMG audit, you get an estimate of $45.2 billion over 30 years.
For the sake of comparison, it is probably most accurate to say that the stated cost has gone from $15 to $16 billion over 20 years to $45.2 billion over 30 years. (Peter MacKay’s office has waded into this debate and Colin Horgan has parsed it here.)
By John Geddes - Wednesday, December 12, 2012 at 6:54 PM - 0 Comments
It was painful to listen to Defence Minister Peter MacKay this afternoon as he faced repeated questions from reporters on whether he has any regrets about his handling of the government’s program to buy F-35 fighter jets.
Today’s news, not surprisingly, is that the problem-plagued Lockheed Martin jet is only one of several whose costly tires the government will soon be kicking. And so pretty much everything MacKay has ever said about the necessity and inevitability of the F-35 procurement has proven to be dead wrong.
He might have made it easier to hear his answers without wincing had he just admitted to past mistakes. Failing that mature, obvious response, he might have clung to a fragment of dignity by resolving at least not to drag Canadian men and women in uniform into it.
By Aaron Wherry - Wednesday, December 12, 2012 at 3:34 PM - 0 Comments
A long-awaited KPMG report on the F-35 purchase says National Defence did not build a big enough financial cushion into the plan. It says the $9 billion the department set aside may not be enough to pay for the planned 65 jets.
The report says uncertainties in the oft-delayed program could force the air force to cut the number of planes to 55 — or force the Conservatives to up the purchase amount by between $1.5 billion and $2.5 billion. The Conservatives have said the $9 billion figure is carved in stone.
By Aaron Wherry - Friday, December 7, 2012 at 10:33 PM - 0 Comments
Reuters, the Canadian Press, Star, Globe and CTV report that a four-person panel will review the options for a new jet fighter and John Ivison says the price tag for the F-35 will be $45.8 billion, but John Geddes notes that a panel review is not the same as an open competition.
Among those being identified as members of the four-person panel is Philippe Lagasse, the University of Ottawa professor. Lagasse wrote for Macleans.ca about the auditor general’s report when it was released in April. He wrote again about the F-35 for us in May. He wrote about defence procurement for the Ottawa Citizen this week.
By John Geddes - Friday, December 7, 2012 at 5:56 PM - 0 Comments
After a flurry of subtly conflicting stories, the most likely next step in the federal government’s hopelessly bungled program to buy Canada some new fighter jets now looks like the appointment next week of an expert panel, which will be asked to survey the available options.
To the blissfully uninitiated, that must sound blandly sensible. To the rest of us, the panel’s very existence will finally refute and rebuke several years of insistence by Conservative politicians and Department of National Defence officials that Lockheed Martin’s F-35 Joint Strike Fighter was the only plausible jet for Canada’s future needs. No point, they told us, to look any further.
But if the naming of an independent panel represents the welcome injection of a more open-minded approach, its creation alone doesn’t guarantee either of two developments that critics of the F-35 are hoping for: it doesn’t mean the F-35 is out of the running and it doesn’t mean the government will ultimately hold a competitive bidding process for the new jets.
By Erica Alini - Wednesday, September 21, 2011 at 6:20 AM - 4 Comments
Some Canadian firms are showing how the sector could drive the economy of the future
When the assembly line at Ford’s plant in St. Thomas, Ont., came to a halt on Sept. 15, it wasn’t just one factory that shut down. The closure could bring the death of an entire industrial ecosystem, experts warned. More than 300 suppliers feed into the St. Thomas plant—35 of them in Canada. Job losses are likely to extend far beyond the 1,100 workers directly employed at the southern Ontario plant that had been churning out Ford Crown Victorias, Mercury Grand Marquises and Lincoln Town Cars for the past 44 years.
The story of St. Thomas and its displaced workers follows a script well-known to this and most other rich countries. Between 2004 and 2008, Canada shed nearly 322,000 manufacturing jobs, according to Statistics Canada, and this was before the economic downturn took hold. In the U.S., the hemorrhage, driven, as elsewhere, by cheaper foreign competition and a general shift toward the service sector, amounts to eight million jobs lost since 1979. And workers transitioning to a job outside the factory often have to accept a painful pay cut—in Canada it averages around $10,000 less a year, according to a 2008 report by Toronto-Dominion Bank—driving up the divide between rich and poor. Yet the loss of industrial jobs has simply been assumed to be the price of advanced development.
There are signs, though, that the factory era may not be over in Canada just yet. Some manufacturers in niche markets are flourishing. Others are showing how the production plant, with a high-tech spin on it, could even be the future of the Canadian economy—or at least an integral part of it.
By Erica Alini - Tuesday, May 3, 2011 at 9:00 AM - 0 Comments
Hints of Asia are now visible in high-end European products. Is that what shoppers in India or China want?
High-end boutiques aren’t where most people would look for evidence of a shifting global balance of power. But “if you walk around Paris, or London, and you walk into one of these top-brand shops, 10 years ago you’d find one of the assistants would speak Japanese,” says Nick Debnam, a partner at KPMG, an accounting and advisory firm. “These days they have to speak Mandarin.”
Glitz-hungry Chinese consumers shelled out over $12 billion for luxury goods in 2010, setting their country on track to become the world’s third-largest market for the industry in the next five years, according to consulting firm Bain & Company. And with its own economic miracle, India is a tantalizing opportunity too. Already, the Asia-Pacific region, which excludes Japan, accounts for 17 per cent of the global $234-billion luxury goods market, according to Bain estimates. With market potential so gargantuan, Asia isn’t simply the next frontier for U.S. and European designers to conquer. It is a superpower mighty enough, it seems, to start imposing its own aesthetics on world-class bling.
Hints of Asia are already in the works of some high-end European designers. In November, Louis Vuitton re-edited 40 pieces from its 2010 Spring-Summer and Fall-Winter collections—this time using vintage sari fabric sourced in New Delhi, Bombay and Bangalore, among others. Chanel saluted the Shanghai EXPO 2010 with a “made for China” limited collection featuring traditional-looking items, such as bracelets with interlocking dragons, as well as benevolently ironic ones, such as the classic Chanel chain bag shaped as a Chinese restaurant take-away box. And Canali, the Italian luxury menswear designer, has re-invented suit jackets in the spirit of the maharajas in its India-focused Nawab collection.
By Martin Patriquin - Tuesday, August 25, 2009 at 10:00 AM - 5 Comments
In Quebec’s quest to please Big Pharma, has it become more industry cheerleader than watchdog?
The bulk of Project AON-P7-304 took place in a large, windowless room located in an equally featureless building in Park Extension, a working-class neighbourhood in the northern part of Montreal. At 9 p.m., the 48 test participants were in their assigned seats facing a glass wall, behind which several medical technicians, who work for Montreal-based contract research organization (CRO) Algorithme, milled about in white lab coats. The test participants—always referred to as volunteers, though they certainly weren’t sitting there for free—behaved as strangers do when forced to socialize: they chatted politely, obsessed over their cellphones, read magazines, cast an eye to the TV in the corner.
When the technician yelled out “numéro 34”—the number written on the plastic bracelet around his arm and pasted on his chair—number 34 got up, walked into the laboratory, sat down in a chair and rolled up his sleeve. A technician then applied a tourniquet and extracted three millilitres of blood from a spot just below number 34’s right bicep. Number 34—actually a Maclean’s reporter participating in the study—will have 26 such extractions over the next three days, during which 89 ml of his blood will be harvested. Continue…