Trump administration claims Ottawa's jet procurement plan is unfair to F-35, says report

The Trump administration fired two warning shots last year over the Liberal government's long-delayed plan to replace Canada's CF-18 fighters, saying the procurement process discriminates against the Lockheed-Martin-built F-35 stealth jet, according to a new academic report.

The study by a researcher at the Macdonald-Laurier Institute (MLI) cites leaked Pentagon letters written last summer and late fall to officials at Public Services and Procurement Canada.

The report, released Monday, largely blames the Liberal government for the delays in the procurement, while making only a passing reference to the inability of the former Conservative government to deliver on the same program.

The report's major revelation involves the leaked letters — which are expected to inflame the debate over the nearly decade-long on-again, off-again plan to replace the air force's 1980s-vintage CF-18s with modern warplanes.

The source of the Pentagon's irritation is a federal government policy that insists defence manufacturers deliver specific industrial benefits to Canadian companies.

Canada accused of angling for better deal

That's not how the F-35 program is structured. Countries that participated in the development of the stealth jet — as Canada did — pay an annual fee to remain part of the program, which gives domestic aerospace companies in those countries the right to bid on F-35 work.

The U.S. undersecretary for defence acquisition and sustainment wrote to Canada's assistant deputy minister of defence procurement in Public Services and Procurement Canada last summer to complain about the Industrial and Technological Benefits (ITB) policy.

Ellen Lord warned the policy runs contrary to the F-35 participation agreement and accused Canada of trying to leverage a better deal than its allies.

"This text basically stated that Canada had signed the [Memorandum of Understanding] clearly understanding these provisions and could not now try to renegotiate a better deal," said the Aug. 31, 2018 letter, leaked to MLI researcher Richard Shimooka.

Lord went on to say the current procurement process "would be fundamentally and structurally prejudicial to any F-35 bid."

The point was hammered home when former U.S. Vice-Admiral Mathias Winter, in charge of the Joint Program Office overseeing F-35 development, wrote to Canada's head of future fighter development at Public Services.

After reviewing the federal government's draft request for proposals, Winter wrote that the F-35 would not be able to participate given the way the system is structured now.

"Fundamentally, the F-35 program is different from Foreign Military Sales or Direct Commercial sales procurements," said the Dec. 18, 2018 letter.

"The current [Future Fighter Capability Program] does not allow the F-35 to participate in a fair and open competition that recognizes the special nature and distinct advantages of the partnership."

Lockheed-Martin is one of four manufacturers that plan to bid on the fighter jet replacement program. Several defence and defence industry sources told CBC News in a story published last month that the full tender was expected to be released at the end of May, with final bids to be delivered by the end of the year.

There is considerable uncertainty about the timeline, however, because of questions and disputes about the project's industrial expectations.

"A delay is inevitable," said one defence industry source on Monday.

With the release of the letters, the institute's analysis peels back the curtain on perhaps the most contentious of the disputes: how to reconcile the existing F-35 benefits package with the federal government's standard procurement model.

Lockheed-Martin would not confirm whether the issues raised in the letters remain active concerns, but sources within both the defence industry and the federal government say there is an ongoing dialogue.

The U.S. defence giant, in a statement, said it did not commission the report but acknowledged it had provided "factual information to several think tanks in Canada" about its various programs.

The company said the structure of the F-35 program means it is the U.S. defence department that does all of the talking.

"We continue to provide our feedback to the U.S. government, which leads all government-to-government discussions related to the Canadian fighter replacement competition," said Cindy Tessier, head of communications for Lockheed Martin Canada.

She touted the $1.25 billion in contracts already awarded to Canadian companies because of the F-35 program and said the potential is there for more work once the fighter aircraft reaches full production in a few years.

"As a valued current partner on the program, Canadian industry has the opportunity to produce and sustain components and systems to a fleet that is expected to grow to more than 4,000 aircraft," she said.

A spokeswoman for Public Services Minister Carla Qualtrough did not address the Pentagon letters directly, but did say the government has engaged in continuous dialogue with potential bidders as it sought feedback on the proposed tender.

"The approach is inherently designed to encourage continuous supplier engagement," said Ashley Michnowski. "We do this so that suppliers are able to make informed business decisions.

"Our government has been hard working to address as much of the supplier feedback as possible to ensure a level playing field and a fair and open competition with as many eligible suppliers as possible."

The process is not yet complete, although it is nearing its conclusion and a final request for proposals will be issued soon, she added.