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Friday, May 27, 2016

Canadians won't see price tag for Navy Frigate replacement until 2019

By: Murray Brewster, CBC News 

Liberals learn lesson of F-35 and move to keep shipbuilding cost estimates under wraps till contract signed. 

Canadians will not know the price tag for the navy's frigate replacements — the largest, most complex military purchase in the country's history — until the ink is dry on the contract, Procurement Minister Judy Foote said Thursday.

The decision to keep the numbers secret is just one in a series of measures being taken by the Liberal government to get a handle on the National Shipbuilding Strategy, which was launched almost six years ago with much fanfare.

The program commits the federal government to dealing exclusively with Irving Shipbuilding in Halifax for the construction of combat ships and Vancouver's Seaspan Shipyards for civilian vessels.

The strategy has faced increased skepticism, however, because it has yet to produce a ship and there has been a series of published and broadcast reports with eye-popping cost projections.

Related:
Warship designers, federal government huddle in Halifax on frigate replacement
Defence Minister Harjit Sajjan grilled by MPs in special Commons session
Harper government gave Seaspan shipyard $40M contract on election day

Foote's speech to a defence industry trade show Thursday is an attempt to shut down the speculation.

"We will not be announcing a new cost estimate for the Canadian Surface Combatant until we have signed a build contract," she told delegates, most of them defence contractors. "Given the number of variables that can change and the very long planning periods involved, we have seen how these estimates cause confusion."

Ottawa is not expected to award a design contract until next year. The agreement to build the warships won't be signed until 2019.

The Liberals, who promised openness and transparency during the last election, appear to be learning the lesson of the searing political debate over the F-35 fighter, where arguments over price tags among the Conservative government, the parliamentary budget officer and the auditor general derailed the purchase.
A history of rising costs

When the Harper government first began talking about replacing the navy's 12 patrol frigates with 15 modern warships, the construction cost was estimated at $26 billion.

But that was nearly a decade ago before delays and the corrosive effect of inflation began playing havoc with those assessments.

Last year, the commander of the navy told CBC News the cost of building the ships could well hit $30 billion, even without maintenance and long-term support costs.

The Canadian Press, quoting internal briefings prepared for the new Liberal government, reported in March that the total lifetime price tag could hit $104 billion, a figure stretched out over three decades that would include long-term maintenance, as well as the cost of the crew, fuel and other expenses.
Halifax-based frigate HMCS Montreal is one of the navy vessels slated to eventually be replaced in the federal government's shipbuilding program. (Adrian Wyld/Canadian Press)
The solution for the Liberals is to stop talking about the numbers until they have signed agreements.

"It makes no sense to establish a budget today for a project that will not start for years, even a decade," said Foote, who noted that the previous government never updated its initial shipbuilding cost estimates to reflect changes in material cost, the exchange rate and inflation.

All of this has led to a skewed picture, in her estimation.

"This is the main reason why projects appeared to be vastly over budget when actual contracts were signed," said Foote.

Overcharging by contractors


The Liberals are developing a new costing method and promised Thursday to keep Parliament updated with regular reports and estimates.

The first retrospective of the shipbuilding plan was released Thursday along with the Defence Department's annual list of anticipated capital purchases.

When the shipbuilding strategy was launched, federal officials promised that in exchange for ditching the competitive process they would conduct rigorous oversight to make sure taxpayers were not getting taken for a ride.

But a recent internal report prepared for Public Services and Procurement Canada said the federal government was routinely overcharged by contractors, to the tune of tens of millions of dollars in practices that have been going on for decades.

The Liberals have been warned that years of cutbacks have left the purchasing department without the staff to oversee such complex programs, and Foote announced Thursday that the number of employees working on the shipbuilding strategy will double, possibly triple.

Kevin McCoy, the president of Irving Shipbuilding, said that sticker shock among the public is always a concern, but promised the federal government will pay a fair price for its warships.

"What we have said consistently to the government of Canada is: Canada should pay no more for their warships than other nations with like-minded aspirations," McCoy told CBC News.

"And that is really what is the focus of this strategy, which we endorse."