The shipbuilding strategy isn’t going according to plan. But what’s the plan?

by Amanda Connolly (feat. David Perry)

iPolitics
November 26, 2015

Things are not going according to plan under the National Shipbuilding Procurement Strategy and decisions will need to be made soon about its future, government officials warned Defence Minister Harjit Sajjan and Public Services and Procurement Minister Judy Foote shortly after their appointment.

The strategy was a hallmark of the Stephen Harper government, allocating some $39 billion in contracts for combat and non-combat vessels needed to bring the Royal Canadian Navy back up to strength — or at least move it closer to where it needs to be. Halifax-based Irving Shipbuilding Inc. won the largest chunk of the work when it snapped up the $26 billion combat vessel package. Vancouver-based Seaspan won the smaller $8 billion non-combat vessel deal, while Quebec-based Chantier Davie has won several contracts worth a few million dollars each.

According to a briefing document prepared for the ministers and shared with iPolitics, significant cost overruns and delays will force the government to make some tough choices very soon about what the future of the program will look like.

One of the examples cited in the documents was offshore fisheries science vessels, the budget for which senior government officials said in June had tripled from 2004 projections of $244 million to $687 million.

In that background briefing, the officials pointed the finger at inflation, project management costs and increases in the price of commodities like steel and copper.

But in the briefing documents, other factors were also blamed; in particular, Seaspan needed to find staff who could do the work needed, to create the capability to do design work and to learn how to use its new facilities.

Seaspan spent $170 million to upgrade its Vancouver shipyard to do the work required under the $8 billion non-combat vessel package; the need to learn how to use that new technology played a major role in the delays and increased costs for the offshore fisheries science vessels, the briefing documents say.

Now, the new government will have to decide whether to continue with projects that are experiencing significant cost overruns and delays — like the offshore fisheries science vessels — or make changes to the NSPS to get costs under control.

The offshore oceanographic science vessels could find themselves on the chopping block; the documents warn that funding likely will need to be increased for that project, even though the actual work hasn’t even begun.

Cost increases are also projected for the $26.2 billion Canadian surface combat ship project, part of the combat contract awarded to Irving, and the government will have to decide whether to continue with the former government’s plans under the NSPS given the increasing likelihood that the government will not be able to reconcile initial cost projections with actual costs claimed by the shipyards.

Both Seaspan and Irving have said in statements to iPolitics that they are on-time and on-budget.

Restoring the capabilities of the navy was one of the priorities highlighted by Prime Minister Justin Trudeau during the election campaign; he slammed the government for allowing the procurement process to stagnate.

He vowed to cancel plans to replace the Air Force’s decrepit CF-18s with F-35s, and argued that finding a cheaper alternative would allow him to funnel more money to the navy and accelerate the NSPS.

“Our commitments will, among other things, ensure that the Royal Canadian Navy is able to operate as a blue water fleet well into the future,” said Trudeau in a Sept. 20 press release. “By choosing to replace the existing CF-18s with a more affordable aircraft than the F-35s, we will be able to guarantee the delivery of current procurements for the navy.”

Among the promises were pledges to fast-track and expand the capital renewal of the Royal Canadian Navy and to launch enhanced icebreakers and new surface combatants for the navy.

There’s been no indication from the government of how they plan to address the NSPS problems outlined in the briefing document, although it has indicated it would delay approval of a $750 million service agreement with Davie to build an interim supply ship, intended to bridge the gap until Seaspan is able to get the two joint support ships it is supposed to build in the water. That won’t happen until at least 2020.

So what options do Sajjan and Foote have for getting the NSPS out of the ditch? Dave Perry, senior analyst with the Canadian Global Affairs Institute, redflagged many of the concerns surrounding the joint supply ship program in a 2013 independent evaluation of the project that was ultimately excluded from the Parliamentary Budget Officer’s assessment of the project for unexplained reasons.

Perry — who, along with retired Colonel George Petrolekas, was commissioned to write the report for the Parliamentary Budget Officer — says that if the Liberals are serious about chipping away at the mountain of problems plaguing the NSPS, they need to get serious about big-picture planning for the role the fleet will play in Canada’s foreign policy.

He said they also need to find a way to avoid drawing out discussions on procurement; a more nimble, agile response body will be key to ensuring the government is able to make up for lost time and keep procurement on schedule.

“In terms of speeding things up, we need to get some quicker decision-making than we’ve had in the past,” Perry said. “The government’s going to have to try and make up for some time as best it can.”

To do that, he said, the federal government will have to “knuckle down” and make sure there are no more slips in project timelines; otherwise it could face a major shortfall in capability over the next 15 to 30 years, when most of the ships contracted under the NSPS program are supposed to be finished. Perry said it also needs to define its vision for the Canadian navy — where it will go, what it will do when it gets there, and how often it will head out on missions.

For example, he said, would Trudeau be willing to sacrifice certain advanced capabilities — such as being able to fend off threats from underwater missiles in the Persian Gulf — in exchange for speeding up procurement of more simplified vessels that could still protect Canada and allow it to perform abroad in other capacities?

“Do you want to play a specialized function of a perimeter on a battle group? … (Do) you also want to have the capability to do some kind of something ashore?” Perry said. “Those are the other big questions that need to be answered.”

One thing is clear, Perry said: Trudeau’s promise to divert savings from the F-35 program to the navy won’t be achievable without major changes; cutting the orders by a couple of planes won’t do it, and choosing a cheaper aircraft likely won’t save enough money to speed up procurement.

“Take into consideration a half-century long view of what you want the nation to be able to do with its navy in support of foreign policy,” Perry said. “The decisions that hopefully are going to be made over the next year or two are going to be with the navy until 2060, 2070 so you want to have a long-term view of what you want the nation to be able to do.”