1. National Fighter Procurement Secretariat Secrétariat national dapprovisionnement en chasseurs Seven-Point Plan National Fighter Procurement Secretariat Technical Briefing December 2012

2. Progress on the Seven-Point Plan 2 Funding envelope for the acquisition of F-35 frozen Acquisition funding has been frozen Immediately establish Secretariat within Public Works and Government Services Canada The National Fighter Procurement Secretariat became operational within Public Works and Government Services Canada in June 2012 Department of National Defence to provide annual updates to Parliament on cost of F-35 First annual update released on December 12, 2012 Department of National Defence to evaluate options to sustain a Canadian Forces fighter capability Terms of Reference on the evaluation of options released on December 12, 2012 Treasury Board Secretariat to commission independent review of costs KPMGs Life Cycle Cost Framework and Independent Review of Life Cycle Costs released on December 12, 2012 Treasury Board Secretariat to ensure full compliance with procurement policies prior to approving project In advance of seeking project approval, the National Fighter Procurement Secretariat will be contracting a third party to review the acquisition process to apply lessons learned going forward Industry Canada to provide updates to Parliament on Canadian industrial participation in the F-35 Joint Strike Fighter Program Canadian Industrial Participation in the F-35 Joint Strike Fighter Program report released on December 12, 2012

3. Evaluation of options to replace the CF-18 Terms of Reference will guide work – made public to inform Canadians about scope and process Work led by the Royal Canadian Air Force with members from all key departments Work reviewed by panel of independent reviewers will provide impartial guidance Final report will assess capabilities, costs and risks of each option All non-classified and non-commercially restricted information will be publicly released The current Statement of Operational Requirement will be set aside 3

4. Evaluation of options: six areas of work 4 Analyse threats Assess mission needs Determine necessary fighter capabilities to meet those needs Undertake an analysis of what is available on the market Update analysis on the life expectancy and potential upgrades of the CF-18 Risk assessment that summarizes capabilities, costs and risks with each option

5. Life Cycle Cost Framework: KPMG Life Cycle Cost Framework based on domestic and international best practices, for example, life cycle estimate should include costs for development, acquisition, sustainment, operating and disposal Informs full life cycle cost estimates for Next Generation Fighter Capability program Principles-based - provides guidance on how choices should be made 5

6. 2010 Cost Estimate – over 20-year timeframe Presented in Chapter 2 of the Auditor Generals Spring 2012 Report Total cost estimate of $25.1B, including: – $9B for acquisition – $6.57B for sustainment – $9.57B for operating Acquisition – Purchase aircraft and initial set up Sustainment – Maintain aircraft (e.g. repairs) Operations – Cost to operate the aircraft (e.g. salaries for pilots and fuel) 6

7. 2012 Estimate – 42 years using KPMG Framework Based on KPMG Life Cycle Cost Framework and presented in National Defence Annual Update Covers full life of Next Generation Fighter Capability program –From development through to disposal of the last aircraft (2010-2052) Cost estimates: –$565M for development –$9B for acquisition –$15.2B for sustainment –$20B for operations –$65M for disposal Total - $44.8B over 42 years The longer period of 42 years accounts for the majority of the cost increase 7

8. 2012 Estimate – 20 years using KPMG Framework Over same 20-year period as presented in Auditor Generals Report Total cost estimate is $25.8B, including: –$435M for development –$9B for acquisition –$7.3B for sustainment –$9B for operations Development cost was not presented in Auditor Generals report 20-year estimate using KPMG framework (total $25.8B) is very close to the 20-year estimate presented in 2010 (total $25.1B) 8

9. Annual Update reviewed by KPMG After reviewing National Defences cost estimates against their life cycle framework, KPMG found: –No significant quantifiable differences in the current estimates provided by National Defence for the NGFC program –Attrition costs are provided in the Annual Update but not included in the total estimate –Total contingency level falls at the mid-point of the recommended range and reasonably reflects the identified risks and uncertainties associated with the program Contingency level for acquisition falls below the recommended range 9

10. Canadian Industrial Opportunities – Joint Strike Fighter Program Dec 2009 – identified C$12B = US$10.5B in opportunities Dec 2012 Report – up to US$9.8B in identified opportunities Decline in total opportunities: –Two-thirds due variations in the exchange rate –One-third due to program decisions such as changes in design, and a net decline in the value of opportunities secured by companies in Canada 10 CategoryValues in Billions USD Contracts$0.438 Identified Opportunitiesup to $9.3 Sum of Contracts and Identified Opportunitiesup to $9.8 Note: totals may not add due to rounding

11. Summing up 11 Significant progress on all points of the Plan; several completed Evaluation of options underway; this work will take time Review of procurement process by third party will begin this year; results will be released in the spring Secretariat will ensure ministers have the best possible information to inform the way forward No decision on a fighter capability replacement will be taken until the Seven-Point Plan is completed