ARCHIVED—Frequently asked questions on the National Fighter Procurement Secretariat

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National Fighter Procurement Secretariat

Q1. What is the role of the National Fighter Procurement Secretariat?

The National Fighter Procurement Secretariat was established in June 2012 to coordinate the implementation of the Government's Seven-Point Plan.

Q2. Why were Terms of Reference needed?

The ARCHIVED—Terms of Reference established clear responsibilities for the National Fighter Procurement Secretariat and departments, in order to ensure the effective implementation of the Government's Seven-Point Plan.

The Terms of Reference provided detail about "who, what and how": set out improved governance and coordination structures, how due diligence is strengthened, and ensure the work of the Secretariat is transparent through more timely and effective communications.

Q3. Ministers and officials have said that the Secretariat would 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 informed 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.

Seven-Point Plan

Q1. What were the objectives of the Seven-Point Plan?

The objectives of the Seven-Point Plan were to ensure that:

Evaluation of Options

Q1. What was the purpose of the evaluation of options?

The ARCHIVED—evaluation of options 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. The evaluation of options involved a rigorous assessment of four available fighter aircraft from companies that agreed to participate in the market analysis against the roles and missions outlined in the Canada First Defence Strategy.

An Independent Review Panel ensured the evaluation of options work was both rigorous and impartial, and that the results to be made public are comprehensive and understandable.

Q2. 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.

Independent Review Panel

Q1. What was the role of the Independent Review Panel?

As per the Terms of Reference for the evaluation of options, the Panel assessed the methodology used and the analyses performed, and provided guidance at key milestones in the work. The involvement of the Panel has ensured that the work performed was both rigorous and impartial, and that the results to be made public are comprehensive and understandable.

On June 12, 2014, the Independent Review Panel members released a statement attesting to the rigour and impartiality of the evaluation of options.

Q2. How did the Panel members ensure their independence?

Panel members have agreed that in the interests of independence, objectivity and fairness, they would share with the National Fighter Procurement Secretariat any significant contact they may have had with industry or other stakeholders in the course of their personal and professional activities outside the normal meetings and discussions where Secretariat representatives were present.

Q3. How was the confidentiality of the information shared with Panel members assured?

Panel members were subject to confidentiality provisions and had to keep confidential all information provided to them, including any information that was 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 of such information belongs to Canada.

The Panel's work to review classified documents took place only in facilities suitable for those discussions.

Market Analysis

Q1. What was the purpose of the market analysis?

The objective of the market analysis was 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 was 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 assessed each fighter aircraft against each of the missions outlined in the Canada First Defence Strategy. The market analysis also took 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 did 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 requirement.

A competition is a procurement approach. It would be premature to discuss a procurement approach until the Government has made a decision on the replacement for the CF-18 fleet.

Q3. Who conducted the market analysis?

The National Fighter Procurement Secretariat, in close collaboration with National Defence and Industry Canada, led 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 informed the Secretariat that it was a business decision not to participate in the Royal Canadian Air Force (RCAF) assessment of options. The company also recognized that it has had every opportunity to provide its 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 did the Secretariat gather information about capability, price and industrial benefits from companies?

The Secretariat engaged 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 was informed by three questionnaires:

  1. Capability, production and supportability;
  2. Price; and
  3. Industrial benefits

The information provided informed the Royal Canadian Air Force-led risk-based analysis of options to replace Canada's fleet of CF-18s.

Price Questionnaire

Q7. 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 July 5, 2013.

Q8. Did the companies 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 KPMG Framework and Independent Review of Cost Estimates for the F-35 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 provides rough order magnitude cost data which is representative and broadly comparable. The information allows the Government of Canada to assess all available aircraft with early indications of costs, as appropriate at this stage of the process.

Industrial Benefits Questionnaire

Q9. 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.

Assessment Methodology

Q1. How was the input from companies assessed?

The evaluation of options assessed available aircraft against the missions set out in the Canada First Defence Strategy.

The assessment teams relied primarily on the information received from companies through the market analysis. The Secretariat sought and obtained clarification on their input when required.

Publicly available information from reliable sources and information from other governments were used to supplement the information received from companies, as needed. Companies were informed if this information was used.

Q2. How did 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 ensured that the work being conducted was rigorous and impartial.

Significant differences of opinion between the assessment teams were 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 determined 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 were applied at several stages of the assessment to reflect each of the different missions.

Companies were aware of the weightings and understand how and when they were applied.

Q5. Will companies be informed of the assessments?

Individual meetings with each of the companies took place once the work was completed.

As the evaluation of options continued, every opportunity was provided to industry to ensure that they were putting forward the best information on their aircraft.

Independent Acquisition Process Review

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 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 was 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 needed 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 $194,237.50 ($215,984.91 including taxes).

Q4. Will the Acquisition Process Review Report be made public?

Yes. The Samson & Associates ARCHIVED—Report was made public on December 10, 2014.

Q5. What does the Government of Canada intend to do with the Acquisition Process Review?

The Government ARCHIVED—accepted all of the recommendations put forward by Samson & Associates.

Q6. What was 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 provided lessons learned and proposed recommendations for improvements to current practices and policies for future acquisitions of a similar nature.

Q7. 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.

The notional buy profile is used for planning assumptions only and is not reflective of any decisions that have been made. Any decision on an actual buy profile may vary and would be determined by the Government.

Q8. Has Canada's notional “buy profile” been changed?

The 2013 Annual Update was based on a notional buy profile with aircraft deliveries beginning in 2018. The life cycle cost estimates presented in the 2014 Annual Update are based on notional aircraft deliveries beginning in 2020.

The notional buy profile is used for planning assumptions only and is not reflective of any decisions that have been made. Any decision on an actual buy profile may vary and would be determined by the Government.

National Defence Annual Update

Annual Update 2014

Q1. What are the main differences from last year's annual update?

As outlined in the ARCHIVED—Next Generation Fighter Capability – 2014 Annual Update, the current life cycle cost estimate of $44,796 million represents an overall increase of $120 million, or 0.3%, from the Next Generation Fighter Capability – 2013 Annual Update.

The current estimates include:

Q2. Why did developmental costs increase?

Developmental costs associated with the F-35 increased by $27 million. The increase is primarily due to changes to Canada's projected notional delivery schedule, which results in additional years being added to the development phase. The notional buy profile is used for planning assumptions only and is not reflective of any decisions that have been made. Any decision on an actual buy profile may vary and would be determined by the Government.

Q3. Why did acquisition costs remain the same?

Although the overall acquisition cost estimate remains unchanged, the estimated unit recurring flyaway cost increased by $125 million as a result of updated production cost estimates and changes to Canada's notional buy profile.

The notional buy profile is used for planning assumptions only and is not reflective of any decisions that have been made. Any decision on an actual buy profile may vary and would be determined by the Government.

In addition, the estimated cost for initial spares and the project management office has increased by $95 million and $55 million, respectively. The estimated acquisition contingency has been reduced from $342 million to $76 million. KPMG has recommended an increase to the contingency. This recommendation will be considered by the government as part of the decision making process.

Q4. Why did sustainment costs decrease?

Sustainment cost data is based on actual cost data and parametric analysis by the F-35 Joint Project Office. 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, foreign exchange and the contingency.

The sustainment cost estimate outlined in the 2013 Annual Update included a prudence factor because the cost estimates had at the time not been independently confirmed by the United States Cost Assessment and Program Evaluation Office (CAPE). Since the 2013 Annual Update, the F-35 JPO sustainment cost estimates have benefited from an additional year of data and CAPE has independently confirmed the estimates, thereby reducing uncertainties around the sustainment costs. Given these factors, the amount of contingency applied to the sustainment estimate has been reduced by $1,576 million and is consistent with the KPMG Life Cycle Cost Framework.

Q5. Why did operating costs increase?

The 2013 Annual Update was based on a notional buy profile with aircraft deliveries beginning in 2017 and ending in 2023. Canada's notional buy profile, as outlined in the 2014 Annual Update, has been shifted with deliveries beginning in 2020 and ending in 2025, to align with the extension of the CF-18 fleet to 2025.

Operating cost estimates have increased by $879 million due to the three year shift in Canada's notional buy profile and the corresponding impact of inflation on the estimates.

The notional buy profile is used for planning assumptions only and is not reflective of any decisions that have been made. Any decision on an actual buy profile may vary and would be determined by the Government.

Q6. Why did disposal costs increase?

The increase in disposal costs is attributable to the updated disposal schedule and the impact of inflation.

Q7. How have contingency levels changed?

The contingency estimates for development and disposal have increased in the cost estimates. Specifically, the contingency funding for development increased by $4 million, and disposal increased by $3 million. The acquisition contingency decreased by $266 million since the 2013 Annual Update, while the sustainment contingency decreased by $1,576 million. As a result of these changes, the total contingency has decreased from $4 billion to $2 billion since last year. While the overall contingency provision falls within the range recommended by the KPMG Framework, the provision for acquisition contingency is considered low for a project of this scope and size. If the full acquisition contingency was required, the remaining shortfall could be met by buying fewer aircraft. Moving forward, the Government will consider the frozen acquisition envelope in relation to the capability needed to meet the Canada First Defence Strategy to replace Canada's CF-18 fleet. The KPMG recommendation on contingency will be considered by the government as part of the decision making process.

Q8. Has Canada’s notional first aircraft delivery changed?

The life cycle cost estimates presented in the 2014 Annual Update are based on notional aircraft deliveries beginning in 2020 to reflect the extension of Canada's CF-18 fleet from 2020 to 2025.

Raymond Chabot Grant Thornton Independent Review on Costs (2014)

Q1. What was the cost of the 2014 independent review?

The cost of conducting the 2014 independent review is $58,925 (including taxes). The contract awarded to Raymond Chabot Grant Thornton in 2013 for the independent review of DND's cost estimates for the F-35 included options to conduct additional independent reviews. Public Works and Government Services Canada exercised the option for the review of the National Defence Annual Update.

Q2. What were the findings of the 2014 independent review?

ARCHIVED—2014 independent review

RCGT did not identify any deviations from the Framework that would result in any material changes to the overall life cycle cost estimate. Overall, RCGT found that DND has made significant progress since the 2013 independent review to improve and refine its processes.

Q3. 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 Next Generation Fighter Capability—2013 Annual Update. They did not identify any deviations from the Framework that would result in any material changes.

Q4. 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 (Next Generation Fighter Capability: Life-Cycle Cost Framework) 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.

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.

Q5. What was the value of the KPMG contract?

The total value of the KPMG contract amounts to $705,854.50 (including taxes).

Opportunities for Canadian Industry - Joint Strike Fighter Program

Industrial Participation Report - Fall 2014

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 Joint Strike Fighter Program? How many companies are involved?

According to the most recent numbers received from the prime contractors, companies in Canada have secured US $637 million in contracts, an increase of US $50 million over the results reported in the Canadian Industrial Participation in the F-35 Joint Strike Fighter Program report tabled in Parliament in Summer 2014. Currently, 33 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 $50 million since the Summer 2014 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 companies in Canada will have the opportunity to compete. Taken together, these opportunities plus current contracts could total up to US $10.808 billion. 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.

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