Procurement on warship design, fitting to be intense, competitive: analysts

by Denis Calnan (feat. David Perry and Jean-Christophe Boucher)

The Hill Times
May 25, 2015

While Irving Shipbuilding in Halifax was awarded a $26-billion government contract to build and be the prime contractor for Canada’s new warship fleet, some defence procurement analysts say some of the most intense contracts for these ships are still to come in the designing and fitting of the ships’ integrated systems.

“The actual shipbuilding work is the minority of the actual work by dollar value. And the more complicated bits go into the combat systems and the sensors, the missiles, the communications gear, all that kind of stuff that goes into the ship,” said David Perry, the senior analyst with the Canadian Defence and Foreign Affairs Institute. 

He is also the author of “Putting the ‘Armed’ back into the Canadian Armed Forces: Improving Defence Procurement in Canada,” a paper published by the Macdonald-Laurier Institute in January.

The Irving Shipyard in Halifax is where the combat vessels will be built and Public Works announced in January that Irving would be the prime contractor on the $26-billion procurement to build as many as 15 ships. Next for the government will be choosing who designs the vessels and who integrates the complex systems and makes them work together.

“That process is going to be competitive,” said Mr. Perry. “The combat systems [are] the biggest part, by dollar value, of the whole activity.”

He said the government would be limiting the prime contractor’s ability to mark up costs on its suppliers, thereby limiting the amount of profit Irving can make on top of the profit of the smaller contractors.

“Going forward now, the choice is now between best design and what they call ‘best team,’” said Ken Hansen, an adjunct professor in graduate studies in the department of political science at Dalhousie University and a resident research fellow with the Centre for Foreign Policy Studies. He retired from the Navy in 2009 in the rank of commander after a 32-year career. He is also involved in contributing to reports for the Parliamentary Budget Office.

“The best team approach is a consortium of people that will include designers and shipbuilders, yes, but also system integrators, people who will take product from a variety of sources, weapons systems and sensors, and they will be able to take those and make them work together in a coherent fashion,” said Prof. Hansen.

“The big question now is what will the choice be? How will we decide what the priorities are for performance, effectiveness and cost? And how will we align that with various options for design or builders,” he said.

At least one industry watcher said he thinks that giving Irving much of the work so far in building these ships may be a mistake.

Jean-Christophe Boucher, an assistant professor in political science at MacEwan University in Edmonton and a research fellow at the Canadian Defence and Foreign Affairs Institute, said the government’s relationship with Irving could lead to the government being sued because of inevitable cost overruns and the inability of the company to meet the government’s demands, both of product and price.

It will still be several years until all these ships are actually being built and “at that point, what the $26-billion project will look like, it’s probably going to increase a lot. And since we signed the contract with Irving, reneging on these contracts will incur costs and will produce lawsuits,” said Prof. Boucher.

Mr. Perry said there are efforts to try and avoid that kind of situation. He said there is a risk of the relationship going sour in massive contracts like these, but that the updates that Irving and Seaspan are doing on the existing frigates has gone well and has not resulted in a negative relationship.

While the Canadian Shipbuilding Strategy aims to develop the capacity to make ships in Canada, there will be challenges.

“In the design approach, where you say we’re here to support our own industry, we build it in Canada, we incorporate as much Canadian stuff as we possibly can, into a design that we tailor for our own requirements,” said Prof. Hansen. 

“The design—it may take a long time to sort it out. When you’re starting from scratch and you’re educating your work force and getting your supply chain people in place, there’s inevitably going to be problems. Costs will be difficult to control. But in the end, if you’re looking long-range, you’ll get the product that you wanted. And if your industrial base is capable of producing this stuff, you’ll get the product you set out to get. Now that’s a big if,” he said.

Navel weaponry and sensors are “an eye-wateringly expensive and very dynamic field,” said Prof. Hansen. 

 “So right now we’re talking about stuff that you would only recognize from Stargate Atlantis or Battlestar Galactica: electromagnetic railguns, charged particle laser weapons, robotics, drones. All those things are very futuristic. If we’re going to build this ship here and it’s going to be in operation for at least 25 years, maybe more, than those things will become a reality,” said Prof. Hansen. “Any warship that doesn’t have them will automatically be a museum piece.”