Cyclone helicopter contract revisions urged by report

A naval helicopter procurement program described as the worst in Canada's history was doomed from the start but could be made "viable and operationally relevant" if the federal government urgently adopts a new approach, says a confidential new report obtained by CBC News.

The independent evaluation of the multibillion-dollar purchase of 28 CH-148 Cyclone helicopters to replace a 50-year-old fleet of Sea Kings, obtained by CBC News Network's Power & Politics host Evan Solomon, concludes the government can get the problem-plagued program back on track by negotiating with primary supplier Sikorsky to "re-scope" the project's structure, specifications and delivery approach.

"[The] project could be viable and operationally relevant with a new structure and governance model as described in our recommendations," reads the report from Hitachi Consulting.

• Interactive: How the Cyclone compares to the Sea King 
• Timeline: Bittersweet 50th anniversary for Sea Kings 

A summary of the assessment, which was commissioned by Public Works, urges the government to "sacrifice less important requirements in order to deliver relevant capability" to the Royal Canadian Air Force.

It also recommends a review of "lessons learned" to determine if systemic issues exist that could be addressed in order to avoid future boondoggles with major capital acquisition investments.

Plagued by delays and penalties

The maritime helicopter replacement program has been plagued by cancellations, delays, lawsuits and penalties.

The Conservatives had blamed the previous Liberal government for the bumpy procurement process and cancellation of an earlier helicopter program, which cost more than $500 million.

In 2010, the government amended the contract requirements in a bid to speed up delivery, but the report concludes the program was flawed right from the beginning.

"A fundamental problem existed at the outset of this project — this set the stage for significant misalignment," reads the key finding.

The report says the government believed it was buying an "off-the-shelf" product by Sikorsky — a conclusion also drawn in a 2010 auditor general's report. Yet the project should have been treated as a development program because the "state-of-the-art" aircraft incorporates advanced technology and an in-service support capability "that is likely unsurpassed in the world today," according to the report.

While the fleet was to begin delivery in late 2008, so far only four of the Cyclone helicopters have been delivered — and only on an "interim" basis. The government won't formally accept them because they don't fully meet the specifications.

Last year, then defence minister Peter MacKay cited the Sikorsky deal as an example of how procurement can "go badly wrong."

"This is the worst procurement in the history of Canada, including the $500-million cancellation costs that are attached to the maritime helicopter program and then the costs of the further maintenance to fly the 50-year old helicopters," he said at the time. "They're going to go right out of aviation service and into the museum in Ottawa. And that's not a joke."

Among the report’s recommendations to turn the project around:

• The government should act to achieve program viability with a new form of governance within 45-90 days based on the "urgency of this situation as it has been communicated."
• A new model must be more appropriate to a complex development program based on practices that have been established and proven for such a program.
• Sikorsky must respond to priorities and adjust the technical approach and program plan and enter into a "defined trade space."

Ontario Conservative MP Erin O'Toole said he had not yet read the report — but insisted it is crucial that the new helicopters meet the specifications to ensure the military can fulfil operational requirements. Although some specifications such as software could be acquired incrementally, others must be there from the start, he said.

"There are hard and fast requirements that are pretty much critical portions of the contract that need to be met and we're expecting Sikorsky to meet those requirements before we accept the aircraft," he told CBC's Evan Solomon.

NDP MP Matthew Kellway said the government is "in the driver's seat" and can no longer blame previous Liberal governments for dropping the ball.

"They have to start first by owning this," he said. "There's no excuse seven years on to have these fundamental mistakes and to be pointing back at the Liberal government for what they did."

Liberal defence critic Joyce Murray called the report an "indictment" of Conservative mismanagement of the file and worried that the chronic cost overruns and delays of delivery are jeopardizing safety.

"We do have to be concerned about safety of military personnel," she said.