Warship purchase faces sea of red ink

The federal government’s multibillion-dollar effort to replace the navy’s warship fleet could cost taxpayers 2.4 times more than first expected, Ottawa’s budget watchdog warned Thursday in a new report.

And the longer a process tripped up by delays drags out, the more it’s going to hurt the public piggy bank, the analysis found.

The parliamentary budget officer estimates Ottawa will have to spend nearly $61.8 billion to replace 15 ships — more than twice the original 2008 budget of about $26.2 billion.

Looking at a per-ship price tag, the cost is likely closer to $4.1 billion, rather than the $1.7-billion estimate released in 2008 by the then-Conservative government.

At that higher rate, the office believes the government would only have enough cash to buy six ships, if it still expects to keep the program on budget.

“There’s a gap there and if the government wants to build 15 ships, then they have to, obviously, set aside more money for that,” assistant parliamentary budget officer Mostafa Askari said in an interview.

“We don’t really know what the original budget estimate was based on because there was no detailed costing provided . ... So, we don’t really know on what basis they had $26 billion.”

Askari said there is no detailed documentation available that breaks down the federal government’s original estimate.

The PBO did acknowledge its calculations were based on assumptions it made about the specs of the future warships, which could differ from the blueprints that are ultimately selected by the government.

The number-crunching models it employed also have a range that could mean the eventual price paid by taxpayers will be 20 per cent above or below the PBO estimate.

The Trudeau government launched a competition last fall asking some of the world’s largest defence and shipbuilding companies to design a potential replacement for the navy’s 12 frigates and three destroyers.

The chosen designs will be constructed by Irving Shipbuilding in Halifax, and delivery of the new vessels is expected to start in the mid-2020s.

The massive program has faced delays, including a recent announcement that gave competing firms another deadline extension to submit their designs.

The PBO pointed to several factors that can really drive up the price of naval vessels. They include the weight of the ships, their increasingly complex combat systems, ammunition in the form of missiles — and time.

“The more you delay, the more you have to pay,” said Askari, who added that, at over a year in the making, this latest PBO report likely took longer than any other study released in the past by the office.

The costs of building sophisticated warships can increase significantly as time passes, he said.

U.S. studies have shown the rate of inflation associated with defence projects, and shipbuilding in particular, is considerably higher than the average rate of inflation for goods and services across the whole economy.