Spending watchdog Sheila Fraser warns that the Harper government's estimated $16-billion plan to buy new fighter jets carries significant risk of delays or cost increases - problems her latest audit finds also plagued Defence Department helicopter purchases.
"The F-35s ... I would hope that no one is assessing that as low risk," the Auditor-General said of Canada's controversial fighter jet project as she answered questions on a fall report that sharply criticized Defence's procurement behaviour.
Ms. Fraser's office revealed Tuesday that the price tag for two types of helicopters being purchased for the military has doubled to $11-billion. It found that the Department of Defence lowballed estimates when seeking approval, even when it knew that planned design changes would hike costs.
"They were presented as being off the shelf or what would be a simple purchase," Ms. Fraser told reporters. "But this was anything but the case."
The Auditor-General's warning on the F-35 jets comes at a bad time for the Harper government, which is taking heavy fire for its decision to embark on the costly F-35 jet-fighter acquisition without a competitive bidding processes.
Other countries are also rethinking their planned orders or pace of buying the joint strike fighter.
In the U.K., the Cameron government has announced plans to scale back purchases of one version of the F-35. The U.S. Pentagon, concerned about rising costs for the Lockheed Martin fighter, is trying to drive down its price tag. Norway has announced it is delaying when it will start acquiring its F-35s, a move that comes after the Netherlands made a similar decision.
In its fall 2010 report, the Auditor-General's Office probed the purchase of 28 maritime Cyclone helicopters and 15 medium- to heavy-lift Chinook choppers - acquisitions that have suffered huge delivery delays of seven years and five years respectively.
Ms. Fraser also faulted Defence and Public Works for sole-sourcing the Chinook helicopter without properly justifying a decision to skirt a normal competitive process.
"What we found in the audit is troubling," she said in her report.
The watchdog was careful not to allege deceit or malfeasance but nevertheless reserved the toughest language of her entire fall report for the way the departments of Defence and Public Works initially underestimated these purchases.
She said Defence officials were aware their plans to upgrade the basic model Chinook would drive up its final price tag but failed to disclose this to Treasury Board when obtaining a green light for the acquisition in 2006.
"National Defence knew prior to seeking preliminary project approval ... that significant modifications to a basic Chinook were desired and planned," the Auditor-General's report said. "It also knew that these would increase the risks to cost and schedule."
Ultimately, changes that Defence required to "Canadianize" the Chinook drove up the cost of each aircraft by 70 per cent more than what the supplier Boeing had first quoted. Including maintenance costs that weren't initially disclosed, the price tag for the Chinooks has soared more than 80 per cent to $4.9-billion, the watchdog said.
Ms. Fraser's office warns that the spiralling costs of both helicopter purchases could force the military to cut use of the choppers to stay within budget. The Canadian Forces "may have to curtail planned training and operations" as a result, the report said.
Defence Minister Peter MacKay said Tuesday that the maritime Cyclone's purchase history dates back to the former Liberal government. He defended the heavy-lift Chinook acquisition, which he said was a case where information about the full cost "evolved over time."
He strenuously denied these problems would recur in the F-35 contract, which Ottawa has not yet signed.
"There is a big difference between the procurement of helicopters and the F-35.
"We are taking those [Auditor-General]ecommendations onboard and we're acting on them."
Defence also submitted a remarkably modest estimate for the Cyclone helicopter in 2003 for early project approval, the audit said. "[At the time]National Defence should have presented estimated costs for infrastructure, personnel, and operations and maintenance or contracted in-service support."
Ms. Fraser warned that the Defence Department has yet to budget the full cost of operating both the Chinooks and the Cyclones.
"In these cases of the Chinook and the Cyclone ... they said these would be low risk purchases," Ms. Fraser said.
"Obviously, the F-35 is going to be a very complex and complicated equipment to be designed, delivered. And so there will have to be good identifications of the risks and the strategies put in place to mitigate that."