Honey, I shrunk the F-35 cost estimates

The CBC's Terry Milewski reports on how the Conservative government made $10 billion vanish from the cost estimates of the F-35 fighter jet program.

Exactly how did that $10 billion disappear?

In retrospect, there's still nothing quite as startling as this in the auditor general's report on the F-35 program: page 27. That's where Auditor General Michael Ferguson skewered the government with evidence that the charge dogging it for two years was true: that it concealed the full cost of the new fighters.

Ferguson's Page 27 lays out the facts very simply to show that the government told itself the costs were $10 billion higher than the figure it gave to the public.

In one column, Ferguson shows the internal estimate that was "used for decision making," one month before the government announced its decision to buy the F-35 in July of 2010. The figures were not made public — until Ferguson found them.

They showed a purchase price of $8.9 billion, plus personnel, operating and maintenance costs of $16.1 billion, for a total of $25 billion.

Ferguson said that's too low — largely because the costs were estimated over only 20 years when the plane may be in service for nearly twice that long — 36 years. Still, the estimate did include those personnel, operating costs and maintenance, among other extras.

Auditor General Michael Ferguson reported the government's internal cost estimates from 2010 were almost $10 billion higher than the $16 billion they'd said publicly. (Adrian Wyld/Canadian Press)

The $25 billion figure also held up well when compared with an independent estimate made nine months later, in March of 2011, by the Parliamentary Budget Officer Kevin Page.

Page said the "total ownership cost" would be closer to $29 billion. And the difference —even at $4 billion — seems surprisingly small considering the large uncertainties in both estimates. Does anyone know what jet fuel will cost in 2030?

The similarity of the estimates seems more striking still, considering the different methods used to reach them. Instead of the government's 20-year lifespan, the PBO used 30 years — but the bottom lines still came out close. So did the details: the government said personnel, operating and maintenance would cost $16 billion; the PBO said operating and support would cost $14 billion. They reach those figures differently, but still end up in nearly the same place. 

So, give or take a few billion — which is what you have to do with these gargantuan projects — there's not a whole lot of difference to argue about. The problem is that the government did argue, and strongly. With an election looming, it denounced the PBO, his methodology and his total — even though it was not far off its own. What changed?

Goverment made $10.4 billion disappear 

Answer: for public consumption — poof! — the government made $10.4 billion disappear.

It did that by simply removing, entirely, the entries for contingency ($860 million), for operating costs ($4.8 billion) and personnel ($4.7 billion.) At a stroke, the $25 billion figure it used internally shrank to $14.7 billion. And thereby hangs a tale.

In the wake of the auditor general's revelations, the government has argued that operating costs were properly excluded, since those costs would be incurred with any plane we buy and are paid today for the CF-18s.

That explanation does not fit with the Treasury Board guidelines, or with previous scoldings by the auditor general, with which the government has agreed — or said it did. The auditor's argument is that we still have to disclose and to budget for all the costs, even if we are going to pay them anyway.

The government's insistence that operating costs are "paid anyway" also runs into two other problems. First, the F-35s will be more costly to operate and maintain than the existing CF-18s — according to the Pentagon, much more costly. So, at the very least, the difference has to be counted as a new, additional cost beyond what we're paying now. Second, the claim that operating costs should not be included doesn't explain why they were included in the internal estimate.

A third problem is that the government, despite having that estimate for its own use in June of 2010, insisted that it did not exist five months later. Here, the story gets even stranger.

In November of 2010, the House finance committee demanded "all documents that outline acquisition costs, lifecycle costs, and operational requirements associated with the F-35 program" be produced immediately. The Department of National Defence said this was impossible because it would take 10 weeks of work by the entire F-35 program management team. "As such, a complete response to the request cannot be provided within the required seven calendar days." the Department huffed.

So the incredible, disappearing ten billion stayed out of sight during the election campaign. But not forever.


Terry Milewski worked in 50 countries during 38 years with the CBC. He was the CBC's first Middle East Bureau Chief, spent eight years in Washington during the Reagan, Bush and Clinton administrations and was based in Vancouver for 14 years before returning to Ottawa as senior correspondent.