About that “contract”

As noted yesterday, the idea of there being a “contract” to purchase the F-35 seems to have changed. (Here and here are other examples of Mr. Harper using the c-word. And here is Michael Ignatieff using it. And here is Bob Rae using it five months ago.)

When the Prime Minister was confronted about his terminology last month, he explained that he was referring to a “memorandum of understanding.” That MOU was signed in December 2006. The decision to acquire the F-35 was announced in July 2010. And here is a handy fact sheet explaining the MOU.

Canada is buying the F-35 is through a Memorandum of Understanding (MoU) versus signing a contract…

Signing the MoU in 2006 did not commit JSF partners to buy the F-35, instead it laid out the terms and conditions should a partner country decide to purchase the aircraft.

Peter MacKay did refer to an “MOU” on two occasions in 2010, here and here. Tony Clement managed to describe it as both a memorandum of understanding and a contract. But that a contract had not been signed seems to have become a point of emphasis five weeks ago, when Julian Fantino stood in the House and said so.

But that is not quite the end of it. Understandably, the memorandum of understanding is referenced numerous times in the Auditor General’s report. Here is how Postmedia’s Lee Berthiaume summarized the relevant findings earlier this week.

The report says that in convincing the Conservative government to sign onto the MOU, the military talked up the potential billions in contracts Canadian industry could secure if the country continued to participate in the project. However, “while ministers were told, correctly, that signing the 2006 MOU did not commit Canada to buy the F-35, we did not see evidence they were told that retaining industrial benefits depended on buying the F-35 as a partner in the [Joint Strike Fighter] program.”

… Defence Department officials also did not tell ministers that by signing the memorandum of understanding, the government would be hard-pressed to run a fair competition in the future to replace Canada’s ageing fleet of CF-18s.

And now, quite interestingly, here is John Ivison’s latest column. He turns to an October 2010 meeting of the defence committee and an exchange between Dan Ross, the assistant deputy minister for material at National Defence, and former Liberal MP Bryon Wilfert. Mr. Ross apparently argued that holding an open competition to replace the CF-18s would require withdrawing from the memorandum and that would result in penalties and loss of benefits. But Mr. Wilfert was not convinced.

Former Liberal MP Byron Wilfert asked why Canada would have to withdraw from the MOU when it “clearly states that we are allowed to abide by our domestic procurement practices while remaining JSF [Joint Strike Fighter] partners?” Mr. Ross replied that MOU withdrawal would be necessary to allow Canadian industry to benefit from the Industrial and Regional Benefits program, which stipulates all bidders must spend the value of the contract with domestic companies. The rules of the MOU state you cannot set such rules and remain a JSF partner — hence it’s one or the other, Mr. Ross said. (Not being a partner would drive up the cost of the F-35 by about 10%.) This is important because it is the main plank of the government’s rationale for not holding an open and transparent tender for Canada’s next fighter jet.

It is also, according to Mr. Williams, plain wrong. “There is nothing in the 2006 MOU to say you can’t hold a competition,” he said, citing the same section as Mr. Wilfert that suggests Canada could remain a JSF partner and hold its own tendering process.

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