Warship program cost climbs to $70B
The cost of the Canadian navy’s new surface combatant ships has climbed by $8 billion because of delays and changes in the size of the ship, according to the Parliamentary Budget Officer.
The PBO report puts the latest cost estimate of the Canadian surface combatant ships at $70 billion.
“The difference in these estimates is due to new information on project specifications provided by the Department of National Defence; in particular, ship construction will begin later (increasing inflation costs), the ship will be larger than assumed in the previous report (increasing real construction costs), and we exclude the cost of spares beyond the initial two years (reducing real program costs),” the report from Parliamentary Budget Officer Yves Giroux noted.
The updated estimate, released Friday, covers the cost of project development, production of the ships, two years of spare parts and ammunition, training, government program management, upgrades to existing facilities, and applicable taxes.
The Canadian Surface Combatant program is the largest single expenditure in federal government history. The project, being run by Irving Shipbuilding on the East Coast, is to produce 15 warships to replace the navy’s fleet of Halifax-class frigates and Iroquois-class destroyers.
The previous Conservative government originally estimated the cost of the ships to be about $26 billion. The DND now estimates the figure to be between $56 billion and $60 billion.
However, it could be years before the real cost to taxpayers for the megaproject is actually known as the project is just getting started.
The PBO report warned that any delays in building the first ship will be costly. A delay of one year, for instance, could increase costs by almost $2.2 billion.
The federal government plans to begin building the ships in the early 2020s.
Pat Finn, the head of procurement at DND, said the PBO estimates largely align with the department’s new figures. He noted that unlike the PBO, the department does not consider tax in its cost figures because those fees ultimately go back to the federal treasury.
But he agreed with the PBO caution about the added cost if the project is delayed. “That is a key one for us. It’s something we’re watching carefully,” said Finn, assistant deputy minister for materiel.
The shipbuilding program is in the development phase. The government projects the acquisition phase to begin in the early 2020s with deliveries to begin in the mid-2020s. The delivery of the 15th ship, slated for the late 2040s, will mark the end of the project.
The Liberal government announced in February that it had contracted Irving Shipbuilding to acquire new warships based on the Type 26 design being built in the United Kingdom. The order of 15 warships will give the Royal Canadian Navy the largest fleet of Type 26 in the world.
The United Kingdom had planned to buy 13 of the ships designed by BAE but cut that down to eight. Australia plans to buy nine.
The entry of the BAE Type 26 warship in the Canadian competition was controversial from the start and sparked complaints the procurement process was skewed to favour the vessel. Previously the Liberal government had said only mature existing designs or designs of ships already in service with other navies would be accepted, on the grounds they could be built faster and would be less risky. Unproven designs can face challenges as problems are found once the vessel is in the water and operating.
But the requirement for a mature design was changed and the government and Irving accepted the BAE design, though at the time it existed only on the drawing board. Construction began on the first Type 26 frigate in the summer of 2017 for Britain’s Royal Navy, but it has not yet been completed. Company claims about what the Type 26 ship can do, including how fast it can go, are based on simulations or projections.
The two other bidders in the Canadian program had ships in service with other navies so their capabilities are known.
Both Irving and the federal government have insisted the procurement was conducted in a way that ensures all bidders were treated equally.
THE SHIP WILL BE LARGER THAN ASSUMED IN THE PREVIOUS REPORT.