(accessible to federal government employees only)
Q1. What is the role of the National Fighter Procurement Secretariat?
The National Fighter Procurement Secretariat was established in June 2012 and is responsible for the coordination and implementation of the Government's Seven-Point Plan.
Q2. Why are Terms of Reference needed?
The Terms of Reference establish clear responsibilities for the National Fighter Procurement Secretariat and departments, in order to ensure the effective implementation of the Government's Seven-Point Plan.
Terms of Reference provide detail about "who, what and how": it sets out the improved governance and coordination structure, how due diligence will be strengthened, and how the work of the Secretariat will be transparent through more timely and effective communications.
Q3. Ministers and officials have said that the Secretariat will function in a similar manner to the National Shipbuilding Procurement Strategy. How so?
Attributes that led to the success of the National Shipbuilding Procurement Strategy will inform the work of the National Fighter Procurement Secretariat, such as:
Q4. The Ninth Report of the Standing Committee on Public Accounts made six recommendations regarding the replacement of Canada's fighter jets. Does the Government accept all of the Committee's recommendations?
Yes, the Government accepts all of the Committee's recommendations. The Seven-Point Plan documents released on December 12, 2012 respond to all of the Committee's recommendations and provide the relevant information of interest to the Committee.
Q1. What are the objectives of the Seven-Point Plan?
The objectives of the Seven-Point Plan are to ensure that:
Q2. What has been done since the announcement of the Seven-Point Plan?
Q3. What is the purpose of the Seven-Point Plan Status Report?
The Seven-Point Plan Status Report provides a snapshot of where the National Fighter Procurement Secretariat is in implementing the overarching Seven-Point Plan, including some of the key activities that are underway such as the evaluation of options.
Q4. Will the Government present advice to Ministers on the replacement of the CF-18 fleet?
As indicated in the Terms of Reference for the Seven-Point Plan, "Following completion of the National Fighter Procurement Secretariat action plan, the Deputy Minister Governance Committee (DMGC) will present its conclusions to Ministers in support of the Government's decisions on how to move forward with the replacement of the CF-18 fleet." This advice to Ministers will be based on the report that the Royal Canadian Air Force will provide the DMGC (after it has been reviewed by the Independent Review Panel), that details the full analysis of the capabilities, costs and risks of each aircraft option against the six core missions in the Canada First Defence Strategy.
Q5. When will the government make a final decision? When will the evaluation of options be done?
The 2013 Speech from the Throne reiterated the Government of Canada's commitment to completing the Seven-Point Plan as quickly as possible to replace Canada's fleet of fighter jets, including the evaluation of options.
When the Government announced the Seven-Point Plan, it hit reset on the process to replace the CF-18 fleet. The Government will not make a decision until the Seven-Point Plan is complete. For more information on the work completed to date, please visit the National Fighter Procurement Secretariat website which is updated regularly.
An Independent Review Panel is ensuring this work is both rigorous and impartial, and that the results to be made public are comprehensive and understandable. Work is well advanced on the evaluation of options, a key component of the Seven-Point Plan. Using information provided by industry, the evaluation of options involves a rigorous examination of the ability of available fighter aircraft to carry out the missions outlined in the Canada First Defence Strategy.
Q1. Why is this evaluation of options important?
The evaluation of options is aimed at ensuring that the Royal Canadian Air Force has the right equipment to fulfill the six missions outlined in the Canada First Defence Strategy. When the Government announced the Seven-Point Plan, it hit reset on the process to replace the CF-18 fleet. The Government will not make a decision until the Seven-Point Plan, including a thorough evaluation of options, is complete.
Q2. Who is responsible for the evaluation of options?
The evaluation of options work is being led by the Royal Canadian Air Force, and informed by a broad range of subject matter experts drawn from across National Defence and the Canadian Armed Forces. A guiding committee that includes observers from the National Fighter Procurement Secretariat and central agencies is overseeing the work.
A Panel of independent reviewers, external to government, is playing a challenge function by reviewing the methodology used and the analyses performed for each element of the evaluation options, as they are completed. The Panel will also review and assess the comprehensive report prepared by the Royal Canadian Air Force. The aim of the Panel is to ensure that the work performed is both rigorous and impartial, and that the results are comprehensive and understandable.
Q3. When will the evaluation of options be completed? Will the work be made public?
This work will be completed as expeditiously as possible and will culminate in a final report that captures the full analysis of the capabilities, costs and risks of each option against the missions outlined in the Canada First Defence Strategy.
The final report will be approved by the Canadian Armed Forces and National Defence and provided to the Deputy Minister Governance Committee to inform the Committee's conclusions that will be presented to Ministers upon the completion of the Seven-Point Plan.
The report will be made public, while respecting applicable disclosure agreements with other governments and industry.
Q4. Will the Statement of Operational Requirement be revised?
All options are on the table. The Statement of Operational Requirement has been set aside and is not being used as part of this new evaluation of options. Any effects on the Statement of Operational Requirement will be assessed once the Government has had the opportunity to consider the evaluation of options work.
Q5. How long will the CF-18s be operational? How do we ensure there is no capability gap?
As part of the evaluation of options, National Defence is conducting a thorough examination of Canada's current fleet of CF-18s, including an assessment of its capability to contribute to operations for timeframes beyond 2020, and the cost of necessary upgrades to maintain safe and effective operations.
Q6. What is the contract for open source data?
On May 28, 2013, Public Works and Government Services Canada, on behalf of the National Fighter Procurement Secretariat, awarded a competitive contract to G2 Solutions with a value of $31,000.
In addition to the information provided by the companies in support of the Government's assessment of fighter aircraft on the market, the Secretariat contracted G2 Solutions to conduct independent research on public information from government reports, databases, industry and university studies, authoritative journals and other relevant materials recognized in the military aerospace community.
Q1. What is the role of the Independent Review Panel?
As per the Terms of Reference for the evaluation of options, the Panel will assess the methodology used and the analyses performed, and provide guidance at key milestones in the work. The involvement of the Panel will ensure that the work performed is both rigorous and impartial, and that the results made public are comprehensive and understandable.
Q2. How is the Panel conducting its work?
The Panel meets regularly to review the options analysis work being done by the Royal Canadian Air Force. A summary of discussion of Panel meetings is prepared by the National Fighter Procurement Secretariat and posted regularly on the web site.
Q3. Is the Panel writing a report?
No. As per the Deliverables section of the Terms of Reference for the evaluation of options, the Royal Canadian Air Force will write a report that the Panel will review to ensure it is comprehensive and understandable.
Q4. How will the Panel members ensure their independence?
Panel members have agreed that in the interests of independence, objectivity and fairness, they will share with the National Fighter Procurement Secretariat any significant contact they may have with industry or other stakeholders in the course of their personal and professional activities outside the normal meetings and discussions where Secretariat representatives are present.
Q5. How will the confidentiality of the information shared with Panel members be assured?
Panel members are subject to confidentiality provisions and must keep confidential all information provided to them, including any information that is confidential or proprietary to third parties, and all information conceived, developed or produced by the Panel as part of the work when copyright or any other intellectual property rights in such information belongs to Canada.
The Panel's work to review classified documents will take place only in facilities suitable for those discussions.
Q1. What is the purpose of the market analysis?
The objective of the market analysis is to obtain information on capabilities, price, and potential industrial benefits directly from industry in support of the evaluation of available fighter aircraft. Anchored in the principles of openness, due diligence and third party oversight, the purpose of the market analysis is to provide companies with a full and fair opportunity to present information on their fighter aircraft to support the Government of Canada in making its decision on a path forward for replacing Canada's CF-18 fleet.
With the information provided by companies, the Royal Canadian Air Force will assess each fighter aircraft against each of the missions outlined in the Canada First Defence Strategy. The market analysis will also take into consideration information available to the government, as well as knowledge and experience gained by the Royal Canadian Air Force during coalition operations and exercises with allies.
Q2. How does the market analysis differ from a competition?
A market analysis is a standard tool that is used to determine market price and availability. The market analysis is undertaken in advance of developing a procurement strategy and statement of operational requirements.
A competition is a procurement approach. It would be premature to discuss a procurement approach at this point in time. Until the Seven-Point Plan is complete, the Government will not make a decision on the replacement for the CF-18 fleet.
Q3. Who is conducting the market analysis?
The National Fighter Procurement Secretariat, in close collaboration with National Defence and Industry Canada, is leading the market analysis of available fighter aircraft.
Q4. What companies did the National Fighter Procurement Secretariat contact for the market analysis?
On December 27, 2012, an introductory letter was sent to five companies with fighter aircraft currently in production, or scheduled to be in production. The companies were:
Q5. Why did SAAB not participate in the market analysis?
SAAB has informed the Secretariat that it is their business decision not to participate in the Royal Canadian Air Force (RCAF) assessment of options and the Secretariat respects this decision. The company has also recognized that it has had every opportunity to provide their input into the process. Not participating in the market analysis does not preclude any company from participating in a potential future selection process.
Q6. How is the Secretariat gathering information about capability, price and industrial benefits from companies?
The Secretariat is engaging companies through questionnaires to obtain information on each available fighter aircraft and to provide companies with a full and fair opportunity to present information on their aircraft. A market analysis is a standard tool that is used to determine market price and availability. It is generally undertaken in advance of developing a procurement strategy.
The market analysis will be informed by three questionnaires:
The information provided will inform the Royal Canadian Air Force-led risk-based analysis of options to replace Canada's fleet of CF-18's.
Q7. What does the Government of Canada intend to do with the market analysis once it is received?
The information provided by the market analysis will inform the Government's decision on a path forward for the replacement of the CF-18 fleet. The Government will not make a decision until the Seven-Point Plan, including a thorough evaluation of options, is complete.
Q8. Why did the date for the receipt of responses on the final questionnaire on technical capabilities change to May 27, 2013?
In order to be responsive to requests from companies, the National Fighter Procurement Secretariat has extended the date for submission of responses to the capability questionnaire to May 27, 2013, in order to address necessary security clearances with respect to certain classified elements.
Q9. How do you explain the changes between the draft and the final version of the questionnaires?
The changes reflect a careful consideration of the feedback received from companies and provide additional opportunities to put forward information related to their aircraft. All fighters will be assessed in this process and none will be removed.
Q10. The Secretariat sent the draft questionnaire on price to the companies. Did the Secretariat receive feedback?
The companies were given until April 29, 2013, to comment on the draft questionnaire on cost estimates for fighter aircraft. Feedback was received from all of the companies. The final questionnaire reflected the feedback from the companies.
Q11. On May 22, the companies were asked to complete the final questionnaire on price. Did the Secretariat receive responses?
All of the companies provided responses by the deadline of Friday, July 5, 2013.
Q12. Do the companies need to provide full life-cycle estimates?
Guided by Government of Canada policies and international best practices, KPMG designed a framework to inform the development of full life cycle cost estimates for the Next Generation Fighter Capability program.
The draft Price Questionnaire is consistent with KPMG's Next Generation Fighter Capability: Life-Cycle Cost Framework which recognizes the need to base cost estimates on the information available and the purpose for which it will be used. Consistent with this approach, the questionnaire seeks pricing information on the basis of the five broad categories required to develop life-cycle cost estimates, while respecting the high level costing information normally obtained during a market analysis. This will provide rough order magnitude cost data which is representative and broadly comparable. The information will allow the Government of Canada to assess all available aircraft with early indications of costs, as appropriate at this stage of the process.
Q13. The draft questionnaire on industrial benefits was sent to the companies on May 22, 2013, with a deadline to provide feedback by late May 2013. Did the Secretariat receive feedback from the companies?
Yes. The final questionnaire took into consideration the feedback received on the draft questionnaire.
Q14. The final questionnaire on industrial benefits was provided to the companies on June 6, 2013. When did the companies submit the questionnaire?
All of the companies submitted responses by August 6, 2013.
Q1. How will the input from companies be assessed?
The evaluation of options will assess available aircraft against the missions set out in the Canada First Defence Strategy.
The assessment teams will rely primarily on the information received from companies through the market analysis. The Secretariat will seek and obtain clarification on their input if and when required.
Publicly available information from reliable sources and information from other governments will be used to supplement the information received from companies, as needed. Companies will be informed if this information is used.
Q2. How will you ensure that there is no bias in favour of one aircraft?
Representatives from the National Fighter Procurement Secretariat provide oversight throughout the assessment to ensure that the methodology is being applied consistently for all aircraft.
A panel of independent reviewers external to government will ensure that the work being conducted is rigorous and impartial.
Significant differences of opinion between the assessment teams will be brought to the attention of the Independent Panel during the assessment period.
Q3. What do you mean by a risk-based assessment?
The evaluation of options will determine the potential risks associated with each aircraft in accomplishing each of the six missions in the Canada First Defence Strategy.
Q4. How are you weighting the different aircraft capabilities?
Weightings will be applied at several stages of the assessment to reflect each of the different missions.
Companies are aware of the weightings and understand how and when they will be applied.
Q5. Will companies be informed of the assessments?
Individual meetings with each of the companies will take place once the work is complete.
As the evaluation of options continues, every opportunity is being provided to industry to ensure that they are putting forward the best information on their aircraft.
Q1. Why was this report commissioned?
The Government put forward a Seven-Point Plan in response to the Auditor General of Canada's (AG) report of April 2012, to fulfill and exceed his recommendation.
The Terms of Reference stemming from the Plan indicate that a "validation of all the steps taken to date in the acquisition process will be conducted and independently verified."
On January 25, 2013, Samson & Associates was awarded the contract.
The goal of this work is to independently review the steps in the acquisition process taken up to June 2012 and to:
Q2. Will Samson & Associates question or duplicate the Auditor General's work?
No. The Government has accepted the findings and recommendation of the Auditor General; the Secretariat is not questioning or duplicating his work.
However, Samson & Associates will need to review all documentation to date to determine if the shortcomings identified by the Auditor General have been addressed. The aim of the acquisition process independent review is to provide lessons learned and make recommendations for acquisitions of a similar nature.
Q3. What is the value of the contract awarded?
On January 25, 2013, Public Works and Government Services Canada, on behalf of the National Fighter Procurement Secretariat, awarded a contract with an estimated value of $161,950. Further to the initial exploratory work conducted, an amendment of $32,291 was made on July 12, 2013 to allow for additional work to be undertaken to meet the requirements of the contract. The total value of the contract is now $194,237.50 ($215,984.91 including taxes).
Q4. When will the contractor provide its report to the Government?
Work continues to deliver a report that meets the requirements of the contract at the earliest possible opportunity.
Q5. Will the Acquisition Process Review Report be made public?
Yes. The scope of work specifically calls on Samson & Associates to "prepare and present a final report, the latter suitable for public release."
Q6. What does the Government of Canada intend to do with the Acquisition Process Review once it is received?
The information provided by Samson & Associates will provide lessons learned and make recommendations for acquisitions of a similar nature. This work is part of the Seven-Point Plan that will inform the Government's decision on a path forward for the replacement of the CF-18 fleet.
Q7. What is the difference between the independent review conducted by KPMG and the Acquisition Process Review?
In the Fall of 2012, KPMG led a comprehensive review of the acquisition and sustainment project assumptions and potential costs for the Next Generation Fighter Capability, and performed a thorough verification of the National Defence Annual Update to Parliament on the Next Generation Fighter Capability Project.
KPMG also prepared a generic framework to assist decision makers in the analysis of the future life-cycle cost estimates related to other similarly scoped military acquisitions.
The Samson & Associates review will provide lessons learned and propose recommendations for improvements to current practices and policies for future acquisitions of a similar nature.
Q8. Why was the Request for Proposal re-issued?
There were no compliant bids received in response to the first Request for Proposal (RFP) for the Acquisition Process Review which was issued on October 25, 2012. The RFP was re-issued on December 14, 2012.
Q1. Why is Canada continuing its participation in the Joint Strike Fighter Program?
Canada remains in the Program to keep the F-35 option open and to continue to benefit from economic opportunities resulting from the partnership. Until the Seven-Point Plan is complete, including an evaluation of options, the Government will not make a decision on a path forward for the replacement of the CF-18 fleet.
Q2. Has the Government committed money towards the purchase of F-35 fighters?
No. Canada became a partner in the Joint Strike Fighter Program through a Memorandum of Understanding (MoU) signed along with eight other countries. Under the terms of the MoU, the Government of Canada makes a financial contribution to continue to benefit from the partnership, however it does not commit Canada to buy the F-35. The $9 billion acquisition envelope for the purchase of a replacement of the CF-18 fleet remains frozen.
Q3. How much has Canada contributed to the Joint Strike Fighter Program to date?
Canada has been a participant in the Joint Strike Fighter Program since 1997 and has expended US$267.7 million to date to participate in the Program. This figure can be explained as follows:
In addition, Canada helped meet its SDD commitment by investing US$54.9 million in companies in Canada through Industry Canada's Strategic Aerospace and Defence Initiative and the former Technology Partnership Canada program.
Q4. What is the "buy profile"? What are planning assumptions used for?
The term "buy profile" refers to the notional schedule used by the F-35 Joint Program Office (JPO) to indicate how many, and in which year, aircraft will be produced for countries. This notional schedule is used for planning purposes and to deliver cost estimates.
Q5. Has Canada's notional “buy profile” been changed?
The F-35 Joint Program Office has amended the Canadian “buy profile” by shifting Canada's schedule by one year in order to support planning and the development of cost estimates. This moves the notional date of first delivery of aircraft from 2017 to 2018.
In the 2013 Annual Update, a sensitivity analysis was conducted, which included, as an illustrative example, the impact on cost of delaying the current notional buy profile by one year.
Until the Seven-Point Plan is complete, the government will not commit to buying aircraft or timelines.
Q1. When did the Government of Canada release the Next Generation Fighter Capability 2013 Annual Update?
As part of the Government of Canada's commitment outlined in the Seven-Point Plan, the second National Defence Annual Update was released on August 9, 2013 and tabled in Parliament on December 10, 2013.
The Selected Acquisition Report 2012 was tabled in the United States Congress on May 23, 2013. On June 7, 2013, the F-35 Joint Project Office provided National Defence with Canada-specific cost data for the F-35.
Q2. What are the main differences from last year's annual update?
As outlined in the Next Generation Fighter Capability 2013 Annual Update, the current cost estimate of $44,676 million represents a decrease of $144 million. Simplified, the life-cycle cost estimates show an overall decrease of 0.3% from the 2012 Annual Update.
The variance between the 2013 and 2012 Annual Updates are summarized in the Next Generation Fighter Capability 2013 Annual Update.
The current estimates include:
Q3. Why did developmental costs increase?
Developmental costs associated with the F-35 increased by $41 million CAD (Canadian). The vast majority of the increase in development costs results from updated foreign exchange and inflation rates.
Q4. Why did acquisition costs remain the same?
Although the overall cost acquisition estimate remains unchanged since the 2012 Annual Update, the estimated unit recurring flyaway cost for 65 F-35A has increased by $195 million as a result of updated production cost estimates and changes to Partners' buy profiles. Overall the estimated acquisition has been reduced from CAD $602 million to CAD $342 million to remain within the CAD $9 billion ceiling.
Q5. Why did sustainment costs decrease?
The reduction in sustainment costs is based on a significant change in the baseline sustainment estimate received from the F-35 Joint Program Office, as well as adjustments to inflation and foreign exchange factors. In order to be prudent National Defence has increased the sustainment contingency because the reduction in cost shown within the base estimates has not been independently verified by the Pentagon's Cost Analysis and Program Evaluation office.
Q6. Why did operating costs decrease?
Operating estimates have decreased marginally to reflect more recent CF-18 operational cost data (which has been used as the basis for estimating notional Canadian F-35A operating costs), changes in forecasted inflation rates, and refinements in the input data used for the estimate process.
Q7. Why did disposal costs increase?
The methodology used for calculating disposal costs has been updated. Previously the estimate was based on a 1997 US Government Accountability Office study. Defence now has a preliminary disposal plan for the CF-18 fleet, which is used as the basis for estimating the eventual disposal costs of a new fleet.
Q8. How have contingency levels changed?
National Defence's total contingency now amounts to almost $4 billion, a $1.3 billion increase from last year. While these provisions fall within the range of $1.1 billion to $4.5 billion recommended in the KPMG Framework, the provision for acquisition contingency could be considered low for a project of this scope and size.
The contingency estimates for development, sustainment and disposal have all increased in the cost estimates. Specifically, the contingency funding for development increased by $5 million, for sustainment increased by $1,546 million and disposal increased by $17 million. The only decrease in the contingency estimate was for the acquisition estimate. The acquisition contingency went down by $260 million.
While the JPO sustainment estimate has decreased, the Selected Acquisition Report 2012 estimate provided to the United States Congress remains the same as the Selected Acquisition Report 2011 estimate. Given the JPO sustainment cost estimate has not yet been reviewed by the Office of Cost Analysis and Program Evaluation (CAPE), National Defence increased the amount of sustainment contingency.
Q9. The 2013 Annual Update indicated that
“the contingency provision will be re-evaluated after updated, independently calculated sustainment estimates are presented to a US Defense Acquisition Board meeting”. What is the status of this review and will it change the cost estimate?
The review of Joint Strike Fighter (JSF) costs by the U.S. Cost Assessment and Program Evaluation (CAPE) office is ongoing and the results are now expected to be released next spring 2014. Therefore, the sustainment cost estimate presented in the 2013 Annual Update remains valid.
Q10. Why does National Defence treat attrition as a separate cost in the 2012 Annual Update?
National Defence includes in the 2012 Annual Update the cost for attrition aircraft for information, but not as part of its F-35 cost estimates. National Defence has noted that the $9 billion acquisition funding cannot be increased and that any decision on attrition aircraft is contingent on a future government decision.
Q11. Did National Defence apply KPMG's recommended amount of contingency in the 2012 Annual Update?
As an aggregate, National Defence's total amount of contingency of $2.6 billion falls at the mid-point of KPMG's recommended range of $1.1 billion - $4.5 billion. However, National Defence's estimated amount of contingency for acquisition is $602 million, which is lower than the range of acquisition contingency recommended by KPMG. National Defence's sustainment contingency is $2 billion, which is at the top end of KPMG's range.
Q12. Based on the 2012 Annual Update, what is the average Unit Recurring Flyaway (URF) price for the F-35A Conventional Takeoff and Landing variant during the 2017-2023 timeframe?
The up-to-date costing information provided by the F-35 Joint Program Office, based on the United States Selected Acquisition Report (SAR 11), indicates the current URF for the F-35A is US$87.4 million. Canadian F-35 cost estimates are based on the notional delivery of aircraft between 2017 and 2023, however no decisions on a replacement to the CF-18 will be made until the Seven-Point Plan is complete.
Q13. How does National Defence receive U.S. Joint Strike Fighter Program costing information?
As agreed in the Production, Sustainment and Follow-on Development Memorandum of Understanding, cost estimates for the acquisition and sustainment of the F-35 are provided to partners on an annual basis through bilateral communications by the F-35 Joint Program Office. The information provided is based on the same source of information that is used by the U.S. Department of Defense and presented to Congress.
Q1 . What were KPMG's findings on National Defence's application of KPMG's Life-Cycle Cost Framework?
KPMG reviewed the estimates in National Defence's Annual Update and found that they were consistent with the principles of the framework. KPMG did not identify any significant quantifiable differences resulting from the National Defence application of the Life-Cycle Cost Framework.
KPMG did provide observations and recommendations: KPMG Framework and Independent Review of Cost Estimates for the F-35.
Q2. Does the Government accept KPMG's recommendations that are provided in its Independent Review of Life-Cycle Cost?
The Government of Canada accepts all of KPMG's recommendations.
Q3. What length of time do other partner nations use to estimate the costs for the F-35?
Among Joint Strike Fighter partners, there is no standard method of reporting cost estimates for the F-35. Each country has its own methods and reporting requirements, so it would be difficult to compare.
However, in general, KPMG's independent report indicates that Australia, Norway and the Netherlands all use a 30-year life-cycle for their cost estimates.
Q4. What length of time did KPMG recommend National Defence use when providing cost estimates?
KPMG did not recommend a specific time frame. Rather, KPMG recommends costing the full life cycle of the program, from development through to disposal.
Applying the principles outlined in the Framework, National Defence has provided cost estimates for the Next Generation Fighter Capability: Life-Cycle Cost Framework Program over 42 years (2010 to 2052) from development through to disposal. KPMG found that the use of this period of time is consistent with the principles of the Framework.
Q5. Did KPMG review the cost estimates provided by the F-35 Joint Program Office?
Costing information provided by the F-35 Joint Program Office was not subject to the review exercise under the terms of KPMG's contract. The National Fighter Procurement Secretariat's Terms of Reference note “acquisition and sustainment assumptions received from the US Joint Strike Fighter program office will not be included in this review.”
Q6. What was KPMG contracted to do?
Following a competitive process, KPMG - a leading international firm - was awarded the contract to independently review National Defence's acquisition and sustainment project assumptions and potential costs for the F-35.
Guided by Government policies and international best practices, KPMG designed a best-practices guide () to inform the development of full life-cycle cost estimates for the F-35. The Framework outlines the people, processes and products required to develop a full life cycle cost estimate. Framework
KPMG subsequently analysed, verified and reported key findings on National Defence's application of the Framework to the Next Generation Fighter Capability program. This portion of the independent review involved an assessment of the scope, assumptions and calculations underlying National Defence's estimate. Finally, KPMG verified National Defence's first Next Generation Fighter Capability Annual Update.
Q7. What was the value of the KPMG contract?
The total value of the KPMG contract amounts to $705,854.50 (including taxes).
Q1. Why was an independent review of the 2013 Annual Update commissioned?
On March 11, 2013, Raymond Chabot Grant Thornton was awarded a contract to conduct a review of the application of National Defence's life-cycle cost estimates for the F-35.
The purpose of this new independent review was to ensure the KPMG's Life Cycle Cost framework is appropriately applied by National Defence and that the cost estimates in the upcoming 2013 Annual Update to Parliament are sound. Through this independent review, the National Fighter Procurement Secretariat is meeting its commitment as outlined in the Seven-Point Plan to ensure due diligence, as outlined in the Terms of Reference.
Q2. What was the value of the contract awarded?
Public Works and Government Services Canada, on behalf of the National Fighter Procurement Secretariat, awarded a contract with an estimated value of $64,725.65 (including taxes). The cost was determined based on market value, as a result of the bids received.
Q3. Why has the Government included two additional one-year periods in the Request for Proposal for this contract?
The Government has included two optional periods of work in the Request for Proposal in the event annual updates on the Next Generation Fighter Capability: Life-Cycle Cost Framework program will be produced in 2014 and 2015. The contract does not commit Public Works and Government Services Canada to exercise either of these two optional periods, which may be exercised solely at the discretion of Public Works and Government Services Canada.
Q4. Has Raymond Chabot Grant Thornton been contracted to review a future annual update?
The Government has exercised the option to extend the contract for one year to ensure readiness for this review if required. The timing of a future annual update is yet to be determined.
Q5. What is the value of the contract for the option year?
As outlined in the initial contract, the total possible cost for the option year is $45,587.59 (including taxes). To avoid any payment in advance of knowing if a future review is required, the contractor will not start work until a decision is made.
Q6. How does this independent review differ from the independent review conducted by KPMG?
KPMG was contracted to develop a life-cycle framework for the F-35 and independently verify National Defence's costs estimates in the Next Generation Fighter Capability 2012 Annual Update.
Q7. What were the findings in Raymond Chabot Grant Thornton's Independent Review?
The independent review of the application of National Defence's estimated life-cycle cost was released on August 9, 2013 and tabled in Parliament on December 10, 2013. As part of the transparent process that is integral to the Secretariat's mandate, Raymond Chabot Grant Thornton provided an independent review of the 2013 Annual Update. They did not identify any deviations from the Framework that would result in any material changes.
Q1. Are industrial participation values contingent upon Canada procuring the F-35?
Yes. The 2006 Memoranda of Understanding between the Government of Canada and the prime contractors (Lockheed Martin and Pratt & Whitney) state that continued access to industrial opportunities is contingent upon the Government of Canada remaining a partner in the Program and procuring the Joint Strike Fighter (F-35) aircraft.
Q2. How is Canadian industry benefiting from the Program? How many companies are involved?
As of summer 2013, companies in Canada have secured US$504 million in contracts, an increase of US$16million over the results reported in the Canadian Industrial Participation in the F-35 Joint Strike Fighter Program report tabled in Parliament in May 2013. Currently, 32 companies have active contracts.
New skills and technologies gained through the F-35 Program have helped position Canadian industry to take advantage of other advanced aerospace and defence projects. For instance, GasTOPS of Ottawa, Ontario developed debris sensors for the F-35's engine. As a result, their sensors were chosen by Pratt & Whitney for inclusion on the new geared turbofan engines that will power the Bombardier CSeries and Airbus' A320neo.
Q3. Contracts have increased by US $16 million since the May 2013 Report. Will contracts continue to increase?
The growth of contracts reported by the prime contractors depends on several factors, including the best value competitive nature of the opportunities and the JSF Program production, which is expected to remain constant in the short-term.
Q4. What are the potential long-term benefits for companies in Canada?
Given Canada's early involvement in the Program, companies in Canada are directly involved in the global supply chain of the F-35 aircraft. If Canada decides to purchase the F-35, companies that currently have contracts will have the opportunity to increase their level of participation as the Program moves into a higher rate of production.
In addition, there are other opportunities identified in the industrial participation plans for which Canadian companies will have the opportunity to compete. Taken together, these opportunities plus current contracts could total up to US$9.933 billion in future work. It should be noted that there are significant opportunities in areas such as sustainment, maintenance, repair, training and simulation that have yet to be identified.
Q5. Is the work guaranteed? Are prime contractors obligated to put work in Canada?
There are no guarantees since companies are awarded contracts on the basis of 'best value', and that these are contingent on the acquisition of the F-35.
Q6. Why were the industrial participation figures rebaselined and what effect did this have?
To align with the financial information reported by the F-35 Joint Program Office, Lockheed Martin and its key suppliers changed the base year for reporting industrial participation figures from 2002 to 2012. As a result, the value of identified opportunities is now projected in 2012 dollars, instead of in 2002 dollars.
At the same time, for more accurate reporting, identified opportunities were adjusted by Lockheed Martin to reflect the 2012 buy profile of all partners, which includes the adjustment of the acquisition of aircraft by some partners to later years.
While the impact of rebaselining the industrial participation opportunities to a 2012 base year is negligible, the buy profile adjustment had an upward impact on industrial participation opportunities as the nominal value of work done in later years is higher due to inflation. There was no impact on the value of contracts as this value is not adjusted.