Costs continue to climb

David Pugliese,* writing in the Ottawa Citizen, reports that “The cost of the Canadian navy’s new surface combatant ships has further increased because of delays and Screen Shot 2019-06-23 at 06.18.12changes in the size of the ship, according to a new report from the Parliamentary Budget Officer … [this ought not to be surprising, the last PBO report was from two years ago and inflation, alone, takes a toll and the last cost estimate was made before (late last year) the Type 26 was chosen as the winning design] … The PBO puts the latest cost estimate of the Canadian surface combatant ships at $70 billion, some $8 billion higher than its previous estimate from two years ago … [and, he reports that the report from Parliamentary Budget Officer Yves Giroux noted that] … “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)” … [and] …  The updated estimate, released Friday … [last week] … 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.

I’m not sure the new ($70 Billion) figures is a terribly useful number for taxpayers like you or me or for policymakers, either. I’m not convinced that DND, itself, much less the whole of government, including the PBO, has a common, coherent understanding of “life-cycle costs,” and I’m damned sure neither the media nor 99.99% of Canadians has one. I’m glad to see that the government includes “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” but that’s just the tip of the iceberg. These ships are going to be in service for 35± years and they are going to cost money to own and operate every hour of every day and I hope someone is programming ongoing costs (running costs, routine maintenance, upgrades and refits and life extension projects and even disposal) into the long term defence budget guesstimates.

Good management says that the DND budget should be pretty well fixed for the next year or two, fairly firm (even allowing for a change in government) for four or five years beyond the end of the next fiscal year it should be and a reliable planning guide for the next decade or even two. In other words, DND should have a pretty good idea about what it will cost to operate itself, pretty much as it is now, for a generation. I expect (hope, anyway) that defence planners have a ‘Christmas wish list’ of capabilities they want to add or improve/increase (with costs attached) should a defence friendly government ever materialize in Canada or, sadly but more likely when, not if, the need arises.

As Mr Pugliese says, “The Canadian Surface Combatant program is the largest single expenditure in Canadian 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 the Iroquois-class destroyers the navy previously operated … [and, while] … The Conservative government originally estimated the cost of the ships to be around $26 billionDND now states that its estimate is between $56 billion and $60 billion … [but] … it could be years before the real cost to Canadair_Sabre_0258taxpayers for the mega-project is actually known as the project is just getting started.” But even that is misleading … from 1950 to 1958 the several hundred Canadair f-86 Sabre jets that Canada bought for the RCAF was, probably, “the largest single expenditure in Canadian government history,” then from the early mackenzie1950s until 1964 the production of 20 destroyers (DDE and DDH) of the St Laurent, Restigouche, Mackenzie and Annapolis classes (all based on one, baseline, design) was, almost certainly, “the largest single expenditure in Canadian 1024px-CF-18_(cropped)government history,” and I know for a fact that the purchase  decision (in 1980) of 138 CF-18 Hornets made it “the largest single expenditure in Canadian government history.” The simple fact is that the costs of high-tech aircraft, howitzers, tanks, radios and, especially, ships, keep climbing far faster than inflation and if, as we must, we want our armed forces to be adequately equipped then we need to accept higher costs … especially if we want to build ships in Canadian yards, employing Canadian workers.

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* Mr Pugliese is a rare bird in Canadian journalism: a reporter who actually knows and seems to care about the military. He is well informed and, pretty obviously, well connected with senior and middle ranked people inside DND who give him good information. Most journalists neither know much or care at all about DND and the Canadian Forces because, I suspect, their readers/viewers/listeners neither know nor care ~ Global News‘ Mercedes Stephenson being another exception to that rule. So I continue to thank Mr Pugliese for informing Canadians about defence matters.

3 thoughts on “Costs continue to climb

  1. I find the whole costing exercise farcical. What they should be costing is the cost differential to what we operate now. So costs should X billion for a new ship, then X cost per year +/- to run that ship minus the cost to run the current ship. Ammunition costs should only include new ammunition types and should specify why there is new ammunition and what is replacing/adding to.

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