Canada can do better than a $306-billion Surface Combatants price tag

The Office of the Parliamentary Budget Officer's Oct. 27 report on the life-cycle costs of the Canadian Surface Combatants (CSC) estimated the total to be $306-billion. For most Canadians, I expect this comes as sticker shock. However, for those deeply ensconced in the business of defence procurement, this figure was expected. In fact, for over two years I have been publicly reporting on the lifecycle costs of the CSC, with my latest estimate at $286-billiion, a seven per cent variance from the PBO’s estimate. (Using the PBO’s just-released estimated acquisition cost of $80.2-billion, my long-term cost estimate would have been $297-billion, a three per cent variance from the PBO’s estimate.) Similarly, ministers and senior bureaucrats involved in the program were fully aware of its true long-term costs. Yet they chose to mislead and hide the truth from Parliament and from Canadians. Having said that, the first question to consider is whether these costs are reasonable or can we do better? The answer is, we can do much better. We need only look at the costs of the U.S. Navy’s Constellation Class of frigates being built by Fincantieri. These frigates are comparable to our CSC and, according to the latest U.S. Congressional Research Service, cost approximately $1.5-billion, or about one-third of Canada’s CSC. As another example, in 2017 Franco-Italian partners Naval Group and Fincantieri submitted an unsolicited proposal to the Canadian government to build 15 CSC at a fixed cost of $30-billion. The vessels would all be built by Irving Shipbuilding Inc. in Halifax and utilized the consortium’s operational FREMM frigate design. Skeptics will point to a 2021 PBO analysis stating that there is only a 10 per cent savings in the acquisition costs for the CSC in moving to a FREMM designed frigate from a TYPE 26 design. However, the PBO based its analysis on the government utilizing the same disastrous procurement process. Unlike the current fatally flawed process, a new process would allow for a competition amongst shipyards in Canada. It would demand a fully operational ship design, systems fully designed and operational on ships, and provide industry with a finalized statement of requirements. It would not put at risk the industry’s intellectual property and would ensure the government retains decision-making authority. Given the progress to-date, such a process could be completed within two years, with deliveries to begin in the early 2030s—a timeline in keeping with the current plan. Royal Canadian Navy commander Vice-Admiral Angus Topshee would get the 15 CSC he said he needs without having to compromise on the requirements or on the number of frigates. The second question to be answered is how to proceed? The government has three options. First, it can bury its head in the sand and insist it has sufficient funds to meet all of the capital needs of the army, navy, and air force. Fact is, the acquisition costs of the CSC alone will consume approximately two-thirds of the capital funds available over a 30-year period. In other words, without an influx of additional capital funds, less than $1.4-billion a year would be available over this period to meet all of the other capital requirements for the army, navy, and air force combined, including the F-35 jets and the other ships under the National Shipbuilding Strategy. Not sustainable. Second, the government could attempt to buy 15 of the U.S. Constellation Class frigates. However, these frigates are designed to meet the U.S. requirements, not Canada’s. We are a sovereign country. We need ships that meet our needs. The third option is to conduct an open, fair, and transparent competition as outlined above. The only remaining decision is to determine how many ships should be built under this new process. Constructing 15 new CSC leads to the biggest cost savings. It does, however, require the government to “eat” the near $1-billion already paid to Irving Shipbuilding Industries. It would also be an admission of total incompetence to-date. As such, I am doubtful this government has the courage to implement this strategy. As a fall back, the government could agree to construct three ships under the current, flawed procurement process while, in parallel, launching the recommended competitive process to construct 12 additional frigates. Economies of scale would make this a viable option and would reduce legal risk. It is an acceptable option, just not as good as constructing 15 new frigates under the recommended process. The fact that we could not rely on officials or ministers within the Department of National Defence or Public Service and Procurement Canada to provide accurate cost estimates, and instead had to depend on an outside organization like the PBO to obtain this information should trouble all Canadians. It reflects a fundamental and disturbing flaw in the culture of the bureaucracy and the government. Nevertheless, now that we have accurate cost estimates for the CSC, the government still has time to step back from the precipice and avoid an unmitigated disaster. No contract for the construction of the frigates has been signed. It’s really not complicated. Stick to the current path and eviscerate DND. Change course and do right by the military and the taxpayer. Alan Williams is a former assistant deputy minister of materiel at DND. He is now president of The Williams Group providing expertise in the areas of policy, programs and procurement. He has authored two books, Reinventing Canadian Defence Procurement: A View From the Inside, and Canada, Democracy, and the F-35. He can be reached at williamsgroup691@gmail.com. The Hill Times

Canada can do better than a $306-billion Surface Combatants price tag

Now that we have accurate cost estimates for the Canadian Surface Combatants, the government still has time to step back from the precipice and avoid an unmitigated disaster.

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Canada can do better than a $306-billion Surface Combatants price tag

Now that we have accurate cost estimates for the Canadian Surface Combatants, the government still has time to step back from the precipice and avoid an unmitigated disaster.

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