Canada Would Face No Penalties for Withdrawal from JSF Program

The 2006 agreement for developing the controversial F-35 stealth fighter jets contains a withdrawal clause that would allow a new government to end Canada's participation with no penalties and appears to contradict the government's claim that Canadian firms involved up to now would suffer.

The clause, combined with other clauses and timetables in the memorandum of understanding gives Canada the opportunity to withdraw at any time before it signs its first procurement contract in 2014. It would face no penalties other than costs it might incur through the termination of contracts specifically reached for its own order of the stealth fighters, said Alan Williams, a former deputy minister who was at the centre of the project when it began eight years ago.

And, should withdrawal mean Canada would have to pay those costs by dropping out of the development phase of the fighter program, the total amount of Canada's financial contribution to the program would not exceed the $551 million it is already committed to for its share of development costs for production of the Lockheed-Martin jets, the agreement says.

The agreement's language seems to contradict Industry Minister Tony Clement's (Parry Sound-Muskoka, Ont.) suggestion last week that the Liberal party risks hundreds of millions of dollars in lawsuits, as well as lost jobs in Canada's aerospace industry, if it carries out a promise that a Liberal government might withdraw from the agreement and open up a competition to replace Canada's aging fleet of CF-18 fighter jets.

"We've seen this all before," Mr. Clement said. "When the Liberals scrapped the Sea King [naval helicopter] renewal contract in 1993, it cost taxpayers $500 million [in court settlements] for nothing, and then it took the Liberals 11 years to find a replacement," Mr. Clement said.

He made the statement after Liberal MPs vowed the party would drop out of the fighter program if elected unless the Conservative government explains why Canada requires the expensive stealth fighters—which will cost a minimum of $16 billion including acquisition and maintenance for 65 of the aircraft—and provides evidence the purchase is the best deal for the Canadian Forces and taxpayers.

"Any participant may withdraw from this MOU upon 90 days written notification of its intent to withdraw to the other participants," says the 2006 Memorandum of Understanding Canada signed along with the U.S., Australia, the United Kingdom, Turkey, The Netherlands, Italy, Norway and Denmark. "For contracts awarded on behalf of the participants, the withdrawing participant will pay all contract modification or termination costs that would not otherwise have been incurred but for the decision to withdraw; in no event will a withdrawing participant's total financial contribution, including contract termination costs, exceed that participant's total share of the financial cost."

A paragraph in the same section of the agreement allows for the possibility of even the United States Defence Department—which plans to acquire 2,400 of the fighter jets—to withdraw. The agreement says the U.S. Defence Department in that case would "use its best efforts" to provide support for the production, sustainment and follow-on development of the (Joint Strike Fighter) system to the remaining participants as long as those participants require such support."

Mr. Williams, an assistant deputy minister in the Canadian Defence Department who signed an early version of the agreement to develop the stealth fighters in 2002, said the agreement supports his argument that Canada has the freedom to drop out of the development phase of the program and—after an open competition with bids from other fighter-jet manufacturers—would still be able to purchase the F-35s from Lockheed Martin if it wishes following the tender process.