Feds often bungle big-ticket purchases
In June 2010, the Stephen Harper government announced the longawaited National Shipbuilding Procurement Strategy for the Royal Canadian Navy and Canadian Coast Guard. It was a $38-billion strategy to commission up to 28 vessels from two Canadian shipyards — Seaspan in Vancouver and Halifaxbased Irving Shipbuilding.
Unfortunately, as is so often the case with government strategies, things haven’t gone according to plan. By 2017, the Parliamentary Budget Office had estimated the cost of the shipbuilding program had leapt to at least $62 billion with further increases expected as projects get pushed farther off into the future, all while our navy languishes without re-supply and refuelling capabilities.
None of this would surprise any longterm observer of military procurement in Canada. For decades, both Liberal and Conservative governments have made a hash of buying big-ticket items — past fiascos include bungled replacement of both helicopters and submarines — leaving our armed forces poorly equipped and taxpayers footing ever-mounting bills.
How is such incompetence possible for such a prolonged stretch of time? There are several reasons.
First, the costs are so massive that the public can barely wrap their heads around them. While most people might know that $16 for orange juice or $286 for a seat cushion is outrageously expensive, they are unlikely to know how much a fighter jet or icebreaker should cost. And with no large-scale public outrage, there’s simply far less pressure on politicians to get their act together.
Second, the highly complex nature of analyzing sophisticated military equipment keeps the real debate limited to a handful of departmental and industry experts. The rest of us, most of whom couldn’t tell a frigate from a destroyer, don’t have much choice but to defer to their expertise when it comes to deciding the technical aspects of what our military needs.
Third, and perhaps most problematic, is the irresistible temptation that governments have to always make procurement more about regional economic development and job creation than simply getting the best quality at the lowest cost to taxpayers.
But in spite of these ever-present obstacles, there is some cause for hope: the Trudeau government appears to realize the dangers of continuing down this expensive status-quo path, and recently dared to say out loud it is looking at a “refresh” of the National Shipbuilding Strategy. It is wise to do so. For starters, the supplier landscape has changed since 2010, with Quebec City-based Davie (which was effectively bankrupt in 2010) having re-emerged as a more competitive entity. There’s no reason it shouldn’t be allowed to bid on shipbuilding projects alongside Seaspan and Irving.
Alarmingly, under the existing strategy, the two designated shipyards are poised to make guaranteed profits of 14.5 per cent. This is thanks to “cost-plus” contracts, in which payment is calculated based on net cost, providing a hugely perverse incentive to allow costs to balloon as high as possible.
The obvious fix here is to move all procurement towards fixed-cost contracts that instead incentivize efficiency and prudent use of tax dollars.
Finally, the government must not be cowed by any shipbuilder that insists on putting regional job creation ahead of taxpayer value and the military’s needs.
By signalling its openness to refreshing the Shipbuilding Strategy, the Trudeau government has a tremendous chance to lay down some clear and simple principles that could apply to all military procurement going forward. It should take this opportunity and save taxpayers billions along the way.
Aaron Wudrick is federal director of the Canadian Taxpayers Federation.