Dutch Rekenkamer Issues F-35 JSF Program Reports
In June 2002 the Dutch House of Representatives approved the Netherlands’ participation in the development phase of the F-35 Joint Strike Fighter, which will last until 2013. They joined as a Tier 2 country, one step below the USA and Britain, and made a contribution of $800 million. In return, they expected that participation would create orders for Dutch firms like Stork Fokker et. al., and they are well on their way to securing a key maintenance center for European F-35 fighters. The Dutch went on to sign the Production Sustainment & Follow On Development Memorandum of Understanding in November 2006, and are scheduled to make a final procurement decision in 2010. Officially, their ‘Plan B’ options include the EADS Eurofighter tranche 3, Dassault Rafale F4, and F-16 E/F Block 60.
As a democratic, accountable government, the Dutch share the common practice of review by a national audit organization. Their version of the GAO, NAO, et. al. is called the Rekenkamer, or Dutch Court of Audit. The proposed F-35 purchase remains somewhat controversial, and arouses hostility on the Left in part due to its status as an American-led project. The Rekenkamer’s F-35 program reports thus have political impact in the Netherlands, and are also watched in other European countries that face the same issues. The Dutch Court of Audit’s October 2006 report has now be joined by a December 2007 follow-on…
Dec 4/07: “Monitoring the Procurement of the Joint Strike Fighter: Situation in September 2007” (Media release | Briefing) is published, with a fuller summary to be presented in January 2008. Key excerpts:
“We concluded that the Ministries of Defence and of Economic Affairs (EZ) were making good progress clarifying the uncertainties surrounding the JSF programme. Nevertheless, it is still highly likely that a decision to purchase the JSF will be taken without there being assurances on the ultimate cost…
There is no complete overview of the cost of the JSF programme to the Netherlands because some of the JSF costs fall outside the Ministry of Defence’s definition of the “F-16 replacement programme”. Furthermore, costs cannot be compared with each other… We also concluded that the Ministry of Defence does not have a complete and accurate understanding of the cost of the JSF owing to its limited access to information held by the main contractor in America, Lockheed Martin. The level price line method proposed by the Ministry of Defence will ensure that every participating country ultimately pays the same price for each aircraft regardless of whether it comes off the production line first or last, but this method has the disadvantage that the final unit price will not be known until production ends.
A study of the business case found that participation in the JSF programme would cost more than buying “off the shelf”. Dutch manufacturers agreed to close this gap by remitting a certain percentage of the turnover they realise on the JSF programme to the State. Until 30 June 2008, the remittance rate will be 3.5%. In July 2008, the business case will be reviewed and the remittance rate will be re-set. It will probably be considerably higher than 3.5%. According to a calculation made by the Ministries of Defence and of EZ, if the remittance rate had been re-set on 1 January 2007 it would have been 5.17%.”
“…The tight staffing level of the JSF project organisation at the Ministry of Defence in the Netherlands also represents a risk to the preparations for the arrival of the JSF. In September 2007, 6.5 FTEs of the 20 FTEs were still vacant. The workload is therefore unreasonably high and there is only limited fallback capacity.
“…The Minister of Defence responded to our report on behalf of himself and the Ministers of EZ and of Finance on 27 November 2007. He thought the project definition used in the annual “F-16 Replacement” reports took precedence and that some of the costs we referred to were not covered by that definition. The Minister of Defence also disagreed with us that the ministry would probably never have a complete and accurate insight into the cost of a JSF aircraft… The minister thought we had been premature to conclude that the final remittance rate would be considerably higher when the business case was reviewed in July 2008. The minister recognised that there were risks in integrating information systems and in the staffing level of the project organisation.”
Oct 11/06: “Monitoring the Procurement of the Joint Strike Fighter” is issued (Briefing | Full report in English [PDF format]). At this point in time, The Netherlands was about to make a decision re: its continued participation in the program’s production phase. The Rekenkamer report covers subjects that range from the challenges inherent in multinational program auditing to program risks and industrial benefits:
“In June 2002 the House of Representatives approved the Netherlands’ participation in the development phase of the JSF (until 2013). It would cost the country USD 800 million in the expectation that participation would create orders for the country. The Netherlands would have to pay approximately EUR 317 million for the first three test aircraft. At the end of 2006, the JSF countries (Australia, Canada, Denmark, Italy, the Netherlands, Norway, Turkey, the United Kingdom and the United States) will sign a Memorandum of Understanding on the production phase. A partner country may end its participation in the project at any moment. If the Netherlands were to withdraw, it would cost the country about EUR 1 billion (part of which has already been paid) plus the payments due during the three-month notice period. The amount of these payments is uncertain. The Dutch government expects the Dutch aviation industry to win orders worth USD 10 billion. The order book for the development phase is currently standing at about USD 310 million (USD 800 million had been projected). It is not thought that many more orders will be received for this phase.”
Note that this order book figure is wildly at variance with Stork Fokker’s own figures of USD 700 million, a claim echoed by the Dutch government. With respect to the Netherlands’ share of program and procurement costs, the Rekenkamer report’s introductory web page adds that:
“Participation in the development of the Joint Strike Fighter (JSF) exposes the Netherlands to financial risks. The cost per aircraft still cannot be calculated. Development costs have risen by more than 80% since 1996. There is no insight into the further development of costs because 65% of the test phase must still be completed. In 1999 the Ministry of Defence calculated that the project would cost at least NLG 10 billion (more than EUR 4.5 billion) if 114 aircraft were procured. The latest calculation, based on 85 aircraft over 30 years, is EUR 14.6 billion. But the figure might turn out to be higher. These findings are presented in a monitoring report the Court of Audit submitted to the House of Representatives today.
The Court of Audit does not express an opinion on whether participation in the JSF programme should be continued or not. It is not the Court’s task to do so; that is a political decision.”
- DID FOCUS Article – F-35 Joint Strike Fighter: Events & Contracts 2007 (updated). See also FY 2006 compilation.
- DID (Dec 4/07) – F-35 JSF Hit by Serious Design Problems (updated). By Johan Boeder of the Netherlands. Notes serious testing issues that have grounded the test aircraft for several months, and also the lack of transparency in the project, which eventually creates some rather sharp political questions in the Dutch Parliament.
- DID (Nov 16/06) – Dutch Sign F-35 Production MoU, But Political Challenges Remain
- DID (Oct 5/06) – Dutch Close to Approving F-35 Production, Participation. Includes translations from a number of key government speeches and statements.