DND says budget for Surface Combatants remains unchanged; PBO report expected in late February

In 2019, the PBO projected the cost of 15 CSC frigates to be nearly $70-billion. The defence department says the ships are still projected to cost between $56- and $60-billion.

By Neil Moss; The Hill Times

November 25, 2020

The Department of National Defence says there hasn't been an increase in cost to the largest defence procurement project in Canadian history, which will serve as the backbone of the Canadian Navy for years to come, as questions loom over delays, which could add billions to the price tag.

Parliamentary Budget Officer (PBO) Yves Giroux is expecting to release an updated cost projection for the purchase of 15 Canadian Surface Combatants (CSC) in late February 2021.

The 15 warships are replacing Canada's current fleet of Halifax-class frigates.

The project is still pegged by DND to cost between $56- and $60-billion.

“There have been no budget changes,” a DND spokesperson told The Hill Times.

The ships were originally budgeted to cost $26-billion before their price was doubled by DND following a 2017 PBO report that estimated the costs to be $61.82-billion.

The most recent projection of the cost of the CSC was done by the PBO in February 2019, which forecast the project could cost nearly $70-billion. The DND calculation does not include taxes that will be paid for construction, which the PBO projection does.

The PBO was initially tasked to examine the CSC procurement by the House Committee on Government Operations and Estimates during the last parliamentary session and report back by the end of October, but that timeline was cut short by the prorogation of Parliament on Aug. 18. Now, the committee has passed a motion to have the PBO to report back by Feb. 5, 2021.

Mr. Giroux told The Hill Times the PBO's report won't be finished until late February.

“Given the complexity in the project themselves—the big procurement projects at DND—its not every day or even every year that the government purchases combat ships, so the comparisons are not very easy to do and there are not that many [countries] in the world where information is readily available [for comparison],” he said, noting the PBO hasn't been having difficulties with DND. The office recently criticized the department of finance for a lack of transparency.

“Even if we get perfect information and totally complete and transparent information from DND, that is only one part of the ledger. It doesn't tell us whether the predicted cost compared favourably or not with other procurement projects by other navies in the world,” he said, adding difficulty arises when trying to compare different ships, with different capabilities, being built by different shipyards, and under different timelines.

In response to the PBO's recent cost projection of Canada's Joint Support Ship procurement, DND said the comparisons that were being used didn't have the same capabilities.

“It's not always easy to compare capabilities that vary greatly from one country to the other and that's one criticism we sometimes get when we're trying to cost defence projects, [that] we did not take into account sufficiently the fact that the Canadian capabilities are so much better than the competitors,” he said.

Another issue when performing a cost analysis, Mr. Giroux said, is that navies procure varying numbers of ships and the cost per individual ship decreases with the more ships that are built.

Mr. Giroux said the cost analysis is in the “early stages” and wouldn't comment on its early findings.

He said the extended timeline is a result of the amount of work and the competing work that the PBO has been tasked with, such as costing COVID-19 supports.

The DND spokesperson said costs for “personnel, operations, and maintenance” that will be needed throughout the life of the ships will be “greatly influenced” by the ship design and “only available later in the process.”

In 2019, the Canadian government selected the BAE Type 26 as the frigate design for the CSC. Lockheed Martin is partnering with BAE Systems. The ships will be constructed at Irving Shipbuilding's Halifax shipyard.

Irving and Lockheed Martin are currently “focused on integrating” the necessary elements from the Type 26 with the Canadian Navy's systems requirements for the CSCs, according to DND.

The PBO will be comparing the cost of the Type 26 to the Type 31e, the FREMM, and other “competing” ships.

Canadian Global Affairs Institute vice-president David Perry, an expert on defence procurement, recently wrote in The Hill Times that there are “rumblings” of delays to the CSC procurement and changes to the ship that could drive up the cost of the project.

The CSC procurement has been going through a requirements reconciliation phase of the design process, which the spokesperson says has been “substantially completed,” adding that the preliminary design work has begun.

“Significant progress has been made over the last 18 months to advance the selected design to meet the RCN's unique operational requirements. This progress has provided us with greater clarity about the complexity of the ship design and its associated combat systems, as well as better insight into the required time to complete the necessary design work before the start of construction,” the spokesperson said, but did not address if there are any delays.

The PBO's 2019 reported indicated that a delay of one year would add $2.2-billion to the cost of the ships and a two-year delay would mean an added $4.5-billion.

“There is no evidence suggesting that the pace of the project has improved as the work became more difficult—and that is without trying to account for any COVID-related impacts,” Mr. Perry wrote.

During the first wave of the pandemic, Irving Shipbuilding reduced staff at their shipyard to about half.

After the design phase of the ships is completed, Irving Shipbuilding will be awarded an implementation contract to build the ships.

“The schedule to build and commission the ships will be better understood as design work progresses,” the DND spokesperson said.

Mr. Giroux said he was surprised by how precise the information being provided to the PBO is.

“I would expect some of the information to be secret for defence reasons [and] national security reasons, and very often they are,” he said. “We're provided with a level of information that is surprisingly detailed in my opinion.”

“In terms of transparency from DND, it's a pleasant surprise so far,” he said, adding he also has been surprised with how Defence Minister Harjit Sajjan (Vancouver South, B.C.) and his officials have been transparent with the PBO.

nmoss@hilltimes.com

The Hill Times

Other major defence procurement projects

Arctic Offshore Patrol Ship (AOPS)

Purpose: The AOPS will provide armed surveillance of Canadian waters, which includes the North, and help enforce Canada's sovereignty with its defence partners.

First announced: in 2015 by the Harper government.

Cost: $4.3-billion

Timeline: First ship was delivered in July 2020 with the sixth and final ship planned for a 2024 delivery.

Victoria-class modernization

Purpose: To extend the life of Canada's four Victoria-class submarines so they have the capability to operate until the mid- to late-2030s.

First announced: in 2017 by the Trudeau government.

Cost: Unknown

Timeline: Currently in the options-analysis phase. More information on the timeline and costs are expected when the current procurement phase is complete.

Joint Support Ships

Purpose: The two Joint Support Ships are replacing auxiliary oiler replenishment vessels that were decommissioned in 2016.

First announced: in 2004 by the Martin government.

Cost: $4.1-billion

Timeline: First ship is expected to be delivered by 2024 and the second one is planned to be completed in 2025.

Fighter Jet Replacement

Purpose: Eighty-eight fighter jets to replace Canada's fleet of CF-18s that serve as the pillar of the Canadian Air Force.

First announced: in 2010 by the Harper government.

Cost: $15- to $19-billion

Timeline: Proposals from three aerospace companies are currently being assessed—Saab's Gripen, Lockheed Martin's F-35, and Boeing's Super Hornet. A contract award is anticipated for 2022 with the first aircraft being delivered “as early as” 2025. The new fleet is planned to operate beyond 2060.

Canadian Multi-Mission Aircraft

Purpose: To replace the CP-140 Aurora fleet to have a “enhanced long-ranged, long-endurance, multi-mission capability.”

First announced: in 2018 by the Trudeau government.

Cost: Unknown

Timeline: Has yet to begin the option analysis phase.