Industry Canada blocked stealth fighter purchase in spat with contractor

Ottawa — The Conservative government’s approval of the multi-billion dollar F-35 plan was held up for over a year by reluctant Industry Canada officials who were angry with the U.S. manufacturer of the stealth fighter, say internal Defence Department documents.

Frustrated air force planners said the delay damaged the program and the country’s aerospace industry, which was left hanging while the dispute over a previous purchase played out behind closed doors.

Industry Canada blocked the federal cabinet’s “consideration/decision” of a replacement for the country’s aging CF-18s because of “concerns over a C130-J In-Service Support contract issue with Lockheed Martin,” said a May 17, 2010 briefing note prepared for the chief of air staff.

The document, obtained under access to information laws by The Canadian Press, was written just weeks before cabinet finally agreed to purchase the F-35. The decision was announced publicly in July 2010 and set off firestorm of criticism that continues to this day.

The air force, which has enthusiastically backed the stealth fighter deal, was concerned right up to the decision day that the project would be derailed.

“This lack of progress diminished Canada’s ability to influence (joint strike fighter) program activities, continues to jeopardize our financial contributions to the program, and resulted in lost opportunities for Canadian industry,” said the note. “Further delays could hinder investment decisions by Canadian industry resulting in significant loss of production/sustainment opportunities.”

Lockheed Martin, the world’s biggest defence contractor, was awarded a $1.4 billion sole-source deal in late 2006 to build 17 C-130-J Hercules transport planes, but when the agreement was signed it did not come with the usual 20-year support and maintenance contract. What followed was years of cantankerous negotiations that vexed Industry Canada, the government department responsible for ensuring Canadian industries and workers benefit multi-national military purchases.

Government insiders have long suggested that Lockheed Martin had the Harper government over a barrel because it had already agreed to a sole-source arrangement and drove up the cost of Hercules maintenance package. But sources in the defence industry said the disagreement largely revolved around how much direct benefit Canadian companies would receive, as opposed to indirect investments.

The feud was enough to prompt complaints from former Industry Minister Tony Clement — concerns that spilled over into the fighter replacement program.

The Defence Department did not respond to questions about the altercation.
Alan Williams, a former defence official in charge of procurement, said the Industry Department was only doing its job and the pointed criticism from within the air force was totally inappropriate.

“Industry Canada had legitimate concerns,” said Williams, who initially signed Canada on to the F-35 development program over a decade ago. “It’s not up to the military to determine what is best for Canadian industry.”

Since the C-130-J and the F-35 were both essentially sole-sourced deals, he said, the normal demands for regional industrial benefits don’t apply and it’s harder to hold contractors to account.

“The military only have a responsibility to prepare their requirements and then they are to butt out,” said Williams, who believes the issue speaks to civilian control of the military.

“I’m not surprised anymore that people on the air staff think it’s OK to write to the general and say: They’re messing with our business. The fact is they’re not and the air staff have no right to get involved in it.”

Since announcing the F-35 purchase, Canadian aerospace companies have signed $370 million in contracts to build parts and components for the fighter which will be built in the United States.

The Conservative government claims up to $12 billion in industrial work is up for grabs over the service life of the aircraft.
© 2011 The Canadian Press