Ship strategy becoming a disaster

Procurement for defence is largely indefensible

The National Shipbuilding Strategy, they called it: a $38 billion, multi-year plan to supply new vessels to the Coast Guard and Royal Canadian Navy out of shipyards in Halifax and Vancouver. Seven years later, the national part is consumed by provincial infighting, no ships have been built and God knows what’s left of the strategy.

Years behind schedule, tens of billions of dollars over budget, the program that was supposed to showcase lessons learned from previous procurement disasters — helicopters, submarines, fighter jets, you name it — is fast turning into one itself. The reason is the same as ever: because procurement in this country is never about procurement, that is, obtaining the best equipment at the lowest price. It is about regional development, and bureaucratic empire-building, and jobs for the boys. The military comes last.

The most recent, and spectacular, instalment in this long-running series of fiascos came with last week’s close of bidding on the Strategy’s largest single component, the purchase of 15 frigates to replace the Navy’s current fleet. Originally budgeted at $26 billion, the project is now estimated to cost at least $62 billion, depending on how much further it is delayed. This, even after the incoming Liberal government announced it would no longer insist on custom-designing the frigates from scratch, but would buy designs off the shelf.

At the last minute, a Franco-Italian consortium pitched a proposal directly to the defence minister, circumventing the usual bidding process. It would build the frigates for a guaranteed price of $30 billion — potentially saving the taxpayer $32 billion, as Postmedia’s David Pugliese first reported. Moreover, the consortium, involving two of the world’s largest shipbuilders, France’s Naval Group and Italy’s Fincantieri, claimed to be able to start delivery in 2019, rather than the 2021 start date currently envisaged. The catch: the first three ships would be built in Europe, then refined and replicated at Irving Shipbuilding’s yard in Halifax.

The department — not Defence, but Public Services, which took over procurement from Defence after the F-35 debacle — was having none of it. The reason? Get this: fairness. “The submission of an unsolicited proposal at the final hour undermines the fair and competitive nature of this procurement,” the department said. “Acceptance of such a proposal would break faith with the bidders who invested time and effort to participate in the competitive process.”

This sort of rules-are-rules punctiliousness would be more believable were the department not already widely suspected of having skewed the bidding process in favour of a rival proposal from Lockheed Martin Canada and Britain’s BAE — a timeworn practice inherited from Defence. But when the potential savings are as large as that, it seems preposterous to reject the Fincantieri-Naval Group proposal out of hand, merely because the proper forms were not filled out.

The department is skeptical of the consortium’s claims, which is fair enough. But it hardly has a sterling track record itself. Virtually every other part of the Strategy is in trouble. Neither of the two supply ships commissioned under the Joint Support Ship Project, to be built by Vancouver-based Seaspan, has even begun construction, in part because the shipyard is still wrestling with the four fisheries patrol vessels it is supposed to deliver to the Coast Guard.

A navy is not much use without supply ships, so as a stopgap the government asked Quebec’s Davie Shipyard to refit a commercial vessel for the purpose. That having been accomplished, the company wants to be given the contract for another, with the increasingly vocal support of Quebec’s political class.

At a rally last week, the premier, Philippe Couillard, demanded that Davie be given a larger share of federal shipbuilding work. “We’re asking for equality,” he said. “We are asking for justice. We’re not asking for charity, we’re just asking for our fair share.” But all of the work on the National Shipbuilding Strategy was contracted to the two coastal yards (at the time, Davie was essentially bankrupt.) So either some of that work would have to be taken away from them and given to Quebec — good luck with that — or the federal government would have to come up with a reason to build still more ships.

So far the feds appear to be holding firm. “We cannot artificially create a need that does not exist,” federal Transport Minister Marc Garneau was heard to explain the other day. But of course they can, and do. If the federal government were not in the business of artificially creating procurement needs, it would not insist on building all new ships, all in Canada, rather than either refitting existing ships, as in the Davie example, or buying or even renting them from abroad: all demonstrably cheaper alternatives, and quicker, too.

But that assumes that kitting out the military is the government’s first priority, rather than keeping Canadian shipyard workers employed. It isn’t only Davie that is grumbling. Facing a bit of downtime between building the third and fourth Coast Guard vessel, Seaspan is publicly soliciting the feds to provide it with new work. Irving, likewise, is nearing completion of six Arctic offshore patrol ships (though stay tuned: the union has just voted to give its leaders a strike mandate) and has nothing else in the pipeline until the frigate project begins. Which may explain the government’s reluctance to wait for three demo models to be built overseas.

All three shipyards are warning of layoffs if Ottawa doesn’ t keep them constantly supplied with new projects, even as existing projects lag behind schedule. The military, once again, comes last.