Honey, I shrunk the F-35 cost estimates

In retrospect, there's still nothing quite as startling as this in theauditor general's report on the F-35 program:page 27. That's where Auditor General Michael Fergusonskewered the government with evidence that the chargedogging it for two years was true: that it concealedthe fullcost of the new fighters.

Ferguson's Page27 laysoutthe factsvery simply to show that thegovernment told itself the costs were$10 billion higher than the figure it gave to the public.

In one column, Ferguson shows theinternal 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 notmade public until Ferguson found them.

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

Fergusonsaid that's too lowlargelybecause the costs were estimated over only 20 years whenthe plane maybe in service for nearly twice that long36 years. Still, the estimate did include those personnel, operating costs andmaintenance, among other extras.

The $25 billion figure alsoheld up well when compared withan independent estimate madenine months later, in March of 2011, by the Parliamentary Budget Officer Kevin Page.

Pagesaid the "total ownership cost"would be closer to $29 billion. And the differenceeven at $4 billionseems surprisingly small considering the large uncertainties inboth estimates. Does anyone knowwhat jetfuel will cost in 2030?

Thesimilarity ofthe estimates seemsmore striking still, considering thedifferent methods used to reach them. Instead of thegovernment's20-year lifespan, the PBO used 30 yearsbut the bottom linesstill came outclose. 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 reachthose figuresdifferently, but still end up in nearly the same place.

So, give or take a few billionwhich is what you have to do with these gargantuan projectsthere'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 thePBO,his methodology andhis totaleven though it was not far off its own. What changed?

Goverment made $10.4 billion disappear

Answer: for public consumptionpoof!the government made$10.4billion disappear.

It did that bysimply 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 scoldingsby the auditor general, withwhich 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.

Thegovernment's insistence that operating costs are "paidanyway" also runs into twoother problems. First, the F-35s will be more costly to operate and maintain than the existing CF-18saccording 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 thatoperating costs should not be included doesn'texplain why they were included in the internal estimate.

A thirdproblem is thatthe government, despite having thatestimate 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 becauseit 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.