DND denies misjudging supply ship cost even though price tag jumped to $4.1 billion

DAVID PUGLIESE, OTTAWA CITIZEN

Updated: July 2, 2020

The defence department denies it ever misjudged the cost of a project to buy new naval ships even though the price tag jumped from $2.3 billion to $4.1 billion in less than two years.

And DND admits the cost to taxpayers for the vessels could rise even more in the coming years.

The Liberal government acknowledged on June 15 that the cost of the project to buy two Joint Support Ships has increased to $4.1 billion. The vessels are needed by the Royal Canadian Navy as they would provide fuel, ammunition and other supplies to warships at sea.

But the $4.1 billion price tag is just the latest in a series of steadily increasing cost figures. In June 2018, the government acknowledged the cost of the ship project had, at that time, jumped from $2.3 billion to $3.4 billion.

But Seaspan, the Vancouver shipyard that is to build the vessels, provided a new set of numbers in October 2019 and by February 2020 government approval was received for a new budget of $4.1 billion, DND confirmed in an email to this newspaper. “As with any large-scale procurement project, all project values are best estimates that are based on the data and figures available at the time,” the email added.

There has been no misjudging of costs on the JSS project, the department noted.

In 2013, the Parliamentary Budget Officer questioned DND's JSS cost estimates and warned that the project would require $4.13 billion.

DND stated in its email to this newspaper that taxpayers can be assured they are getting value for money on JSS and that those working on the shipbuilding project in both the department and Public Services and Procurement Canada are top notch.

“The Department of National Defence and the Canadian Armed Forces, along with our counterparts at PSPC, have a first-rate cadre of experienced, professional procurement officers, subject matter experts and financial administrators who take great pride in their work and in their accomplishments,” DND said in an email. “Our team has – and will continue to – ensure that Canadians get value from their investments in the Armed Forces.”

But DND also acknowledged costs could continue to rise.

“While the total project budget includes contingency funding for these types of reasons, some events may happen unexpectedly and thus excel what the contingency funding allowed for,” the DND email noted. “As a result, it's possible that cost estimates may change for a variety of reasons that can't be controlled or predicted.”

Conservative MP Kelly McCauley said DND's claim that project costs weren't misjudged is “BS.”

“I don't even have faith in their latest cost of $4.1 billion,” added McCauley, who is behind the effort to get the Parliamentary Budget Officer to do a new report looking at JSS. “It's going to go up.”

McCauley said the JSS design is based on the Berlin-class, an existing and proven German Navy ship. But he noted that DND and PSPC keep making changes to the ship, driving up costs and adding delays.

DND noted that, “it's not uncommon for the cost estimate to change throughout the duration of a project, especially for a first-of-class ship.”

DND also pointed out the construction contract with Seaspan may be changed throughout the duration of the project but added that does not necessarily mean the project budget will increase.

The Standing Committee on Government Operations and Estimates recently passed McCauley's motion to request the Office of the Parliamentary Budget Officer undertake a costing analysis of building the JSS in Canada as well as the leasing of Asterix, a commercial ship converted into a supply vessel for the Royal Canadian Navy to use. The PBO report will be presented to the committee by Oct. 15.

The Asterix, converted by Davie shipyards in Quebec, was at the centre of the two-year legal battle Vice Adm. Mark Norman found himself in when the RCMP charged him with breach of trust. The police force alleged Norman had tipped off Davie that the Liberal government was planning to delay its Asterix deal.

The legal case against Norman collapsed in 2019, forcing the federal government to pay the naval officer an undisclosed financial settlement as well as prompting questions about whether the charge had been politically motivated.

The Asterix turned out to be a procurement success and since 2018 has been used to refuel and resupply Royal Canadian Navy and allied warships.

The Liberal government tried to derail the Asterix project shortly after being elected in the fall of 2015. The move came after cabinet ministers, including Scott Brison and defence minister Harjit Sajjan, received a letter from the Irving family with a complaint that the Irving proposal for a similar supply ship was not examined properly. Irving has denied any suggestion it was involved in political meddling.

But after receiving the letter from the Irvings, the Liberals decided to put Asterix on hold. The government, however, had to back off that plan after news of its decision leaked out to the news media. Shortly after, the RCMP began investigating Norman.

https://o.canada.com/news/national/defence-watch/dnd-denies-misjudging-supply-ship-cost-even-though-price-tag-jumped-to-4-1-billion/wcm/6743dc85-efb0-457c-90b9-be1b2d204868