Public reaction to the Government's response to Lockheed-Martin’s complaints about the process being used to find a new fighter has been swift. Although the government was forced to acknowledgement of the validity of those complaints it did little to assuage the irritation voiced by some.
Much of the reaction has revolved around the assumption that the maker of the F-35 is trying to enhance the chances of their aircraft being chosen as Canada’s new fighter by unfair means. In fact Lockheed-Martin’s complaint and the ensuing changes made by the government mainly serve to illustrate the complete bankruptcy of the entire procurement process.
The selection process for the “Future fighter capability project” was supposed to be based on a three category scoring system. The first, and in theory most important, is technical capabilities. The second category is cost and the third is creating and sustaining a highly skilled work force within our own borders, a goal enshrined in Canada’s industrial trade benefits (ITB) policy, which requires a winning bid to guarantee it will make investments in Canada equal to the value of the contract. Each bid is scored by these three categories, weighed 60-20-20, respectively.
Like many others, Elinor Sloan has pointed out that the Joint Strike Fighter program, which Canada has spent millions to join, does not fit neatly into the ITB policy.
As Richard Shimooka outlined in a 2016 paper “Canada joined the JSF Program System Development and Demonstration phase in 2001 with agreement from the Chrétien government, primarily to secure work for Canadian industry and gain access to advancing technologies. In December 2006, the Conservative government signed the PSFD MOU to extend and expand its participation in the JSF Program. Later, in 2009, the government decided that, given the vast benefit advantage in what the JSF partnership offered compared to what the ITB requirement would entail, an exception from the guaranteed offset regime was appropriate. This was affirmed by several legal opinions and analyses undertaken within the Department of National Defence (DND), Public Works and Government Services Canada, and Industry Canada”
The Pentagon and Lockheed Martin have been forced to point out that Canada’s ITB terms are inconsistent with – and indeed prohibited by – the memorandum of understanding Canada signed in 2006, which says partners cannot impose industrial compensation measures. It is not clear if the current government was ever aware of this fundamental incompatibility with their procurement program.
A ‘solution’, which allows for a more flexible approach in determining the value of the benefits bidders offer to Canadian defence firms, has been reached that allows the memorandum to be obeyed, but since Canada will still give higher grades to bids that follow its ITB policy, questions remain as to whether the playing field has really been levelled.
While bidders like Boeing’s Super Hornet, the Eurofighter Typhoon and Saab’s Gripen can still guarantee that they will re-invest back into Canada if their jet wins the competition and get all 20 points, those bidders that can’t make such a commitment, that is Lockheed Martins’ F-35, will be asked to establish “industrial targets” and lay out a plan for achieving those targets and sign a non-binding agreement promising to make all efforts to achieve them.
The government position is that they will study those plans and assign points based on risk.
This immediately raised an issue with other competitors wondering why the F-35 should get points if the company can’t guarantee re-investment back into Canada. There are also concerns about how the government will decide how risky plans to achieve “industrial targets” actually are, with at least one industry source saying that question is entirely subjective.
Most of these new headlines and much of the governments rule changes have been triggered by a report, aptly named The Catastrophe, by Richard Shimooka. Written for the Macdonald-Laurier Institute it outlines the long sad story that is Canada’s Future fighter capability project.
In that report Shimooka makes the all-important point that reciprocal investments, such as Canada’s industrial trade benefits (ITB) policy have long been seen as an inefficient method for delivering economic benefits. In fact several countries, including Australia, have moved away from them to more flexible cooperation approaches. In reality offset agreements are referred to in most studies as “traditional and inefficient”. The decision to avoid such agreements in relation to F-35 production was one of the fundamental choices made early in the program in an attempt to keep the price of the fighter as low as possible for all participants.
At this point it should be noted that Canada has done very well financially from the current F-35 agreement. Having spent a little over $500 million to remain part of the F-35 program Canadian companies have so far won more than $1.3 billion in contracts related to the F-35, according to the government. At one time it was estimated that businesses in this country could land as much as $9.9 billion in contracts to construct and sustain parts for the Lockheed Martin-built stealth fighter.
The government likes to talk about the number of “good middle class jobs” there policies will create but in fact defense spending is the most expensive way to create jobs.
What the government does not like to talk about is how money that could be better spent to create jobs, infrastructure and social capital is being wasted in by paying too much for bloated defence procurement programs that actually create very few jobs in relation to the amounts being spent.
What nobody, including the media who cover these stories and the opposition parties who are supposed to hold the government to account, want to consider is the idea that defence spending should be used for defence, not as a glorified public works program. Until and unless the concept of value for money in defence spending is defined by the amount of military benefit derived from that spending then all of Canada’s defence procurement programs, not just those spent on new fighters, will continue to be accurately described as a “catastrophe”.
After U.S. complaint, Canada to soften rules for jet competition to allow Lockheed Martin bid: source
LOCKMART THROWS TANTRUM... GETS RULES CHANGED... SLIGHTLY.
Future fighter capability project
The U.S. needs to be a key part of Canada’s next-gen jet procurement process
THE FOURTH DIMENSION: The F-35 Program, Defence Procurement, and the Conservative
Government, 2006-2015, Richard Shimooka
Controversial F-35 purchase could bank Canadian businesses $9.9B
Canada changing rules of competition for $19B fighter jet fleet to allow consideration of F-35: sources
The Catastrophe: Assessing the Damage from Canada’s Fighter Replacement Fiasco
Defence Industrial Policy Approaches and Instruments
Defense Spending Is the Most Expensive Way to Create Jobs