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."

Sajjan: CF-18's Need Replacement Now

By: Daniel Leblanc - The Globe and Mail 

Defence Minister Harjit Sajjan has pushed the purchase of new fighter jets to the top of his priority list, stating the current fleet of CF-18s can hardly fulfill its domestic and international mandates.

Minister of National Defence Minister Harjit Sajjan speaks at the CANSEC conference in Ottawa, Thursday May 26, 2016.
(Adrian Wyld/THE CANADIAN PRESS)

“Our fleet of CF-18s need to be replaced now. And the fact they have not been replaced means we are facing a capability gap in the years ahead,” Mr. Sajjan said in a speech on Thursday morning.

“Now, we did not create this issue. Unfortunately I inherited it, but it needs to be dealt with quickly,” he said, blaming the previous Conservative government for failing to buy a replacement plane.

Mr. Sajjan made the comments at the CANSEC defence and military trade show in Ottawa, where the world’s biggest aircraft manufacturers are lobbying federal officials on the merits of their respective product.

Lockheed Martin, which makes the F-35 stealth fighter, has a large presence at CANSEC, despite the Liberal Party’s promise in the last election not to buy its airplane.

Speaking to reporters, Mr. Sajjan refused to state whether any aircraft manufacturer will be prevented from bidding on the multi-billion-dollar contract.

“As I said from the get-go, right now my focus is on making sure that our men and women in the Air Force have the right capabilities and my focus is replacing the F-18s,” Mr. Sajjan said, refusing to lay out a specific timeline for the purchase.

Canada remains an official partner in the F-35 program, which has allowed Canadian firms to win contracts for the international production line. Still, Mr. Sajjan said that will not influence the government’s handling of the procurement process.

“This doesn’t mean that the F-35, we are going to be purchasing that,” he said. “I want to make sure that we do our due diligence before we make any decisions.”

In the last election campaign, Liberal Leader Justin Trudeau promised to opt for a more “affordable” aircraft than the stealth Lockheed Martin fighter jet.

“We will not buy the F-35 fighter jet,” said Mr. Trudeau, less than two months before he was sworn in as prime minister.

However, in his mandate letter to his lead ministers on the procurement file, Mr. Trudeau simply called on them to launch an open and transparent process to replace the CF-18s.

Mr. Sajjan said time is running short.

“Today, we are risk-managing a gap between our NORAD and NATO commitments and the number of fighters available for operations. In the 2020s, we can foresee a growing capability gap, and this, I find unacceptable and it’s one thing that we plan to fix,” the Minister of Defence said in his speech.

The CF-18s were designed to last 20 years when they were purchased in the 1980s. The planes will now be used for twice as long, lasting into the 2020s, Mr. Sajjan said.

More than two dozen protestors blocked one of the main entrances to the CANSEC trade show on Thursday, denouncing the Liberal government for approving the sale of Canadian-made light armoured vehicles to Saudi Arabia. Letting only a few cars enter the facility every minute, the protestors sang songs such as Solidarity Forever and carried banners stating “Canadians Say No To Sending Weapons To Saudi Arabia.”

“He’s putting a Liberal face on the sale of weapons of destruction,” protestor Joel Harden said of Mr. Sajjan. “The Liberals can’t wash their hands of this.”

Still, inside the trade show, Mr. Sajjan toured the booth of General Dynamics Land Systems, which featured a LAV 6.0 vehicle that can be used for humanitarian work.

“That’s great,” Mr. Sajjan said as he was briefed by a GDLS official on the capabilities of the vehicle.

Liberal Officials Explore CF-18 Replacement Options

By: Daniel Leblanc - The Globe and Mail 

The chief of staff to Procurement Minister Judy Foote sat in an F-35 simulator and fought against fake enemy jets at a military trade show in Ottawa, offering a clear sense that the once-maligned Lockheed-Martin aircraft remains in the race to replace Canada’s fleet of CF-18s.

A model of the Lockheed Martin F-35 at CANSEC 2016  (Globe and Mail/Dave Chan)

Gianluca Cairo also tried his hand at Boeing’s Super Hornet simulator, later explaining that the government is simply involved in “information sharing” with all of the firms interested in the massive military contract.

Still, there has been a heavy federal presence at this year’s CANSEC security and defence trade show, as both bureaucratic and political staff showed a willingness to find out more about all of the fighter jets on the market despite the Liberal Party’s pledge not to buy F-35s.

Officials from many of the world’s largest military manufacturers were out in full force to lobby the government on the multibillion-dollar fighter-jet procurement that has been in limbo for years, all trying to prod the Liberals into launching a competition as soon as possible.

“It’s an evolving process,” said John Belanger of Sweden’s Saab, which is hoping to sell its Gripen fighter jet to the Canadian Forces.

“At this point, the government really needs to come out and tell us what they are looking for.”

Prime Minister Justin Trudeau’s Liberal Party said during last year’s election campaign that it “no longer makes sense” to buy a fighter with the F-35’s stealth, first-strike capability, citing skyrocketing costs for a plane that has been plagued with development problems. The Liberals vowed instead to buy a “lower-priced” aircraft and funnel the savings into the Royal Canadian Navy.

However, Mr. Cairo and other officials from Ms. Foote’s office, as well as senior bureaucrats in charge of procurement, made a point of touring all of the stalls at the fair on Wednesday.

At the Lockheed-Martin booth, former Canadian fighter pilot Billie Flynn and retired lieutenant-general Charles Bouchard greeted visitors by arguing that Canada needs the most modern fighter-jet capability to ward off security threats. Canada has been a paying partner in the F-35 program since 2001, although it remains to be seen whether the Canadian Forces will ever buy the aircraft for their own use.

“What I know is that the F-35 program continues to advance and that more countries continue to commit to the airplane with vigour,” Mr. Flynn said in an interview. “There is no wavering of commitment of the partners in the F-35 program and the momentum continues to be strong.”

Boeing is countering that its twin-engine Super Hornet is the best-equipped aircraft to patrol the Arctic, stating it offers more options to pilots in the event of an engine loss than the single-engine F-35.

“It is fundamentally important for the kinds of missions that Canada performs on a day-to-day basis,” said Roberto Valla, Boeing’s vice-president for Canada.

Mr. Valla added that Boeing is promising to invest 100 per cent of the value of the fighter-jet contract in industrial and technological benefits in Canada, whereas the F-35 program only offers Canadian firms a chance to bid on contracts for the international project.

A number of protesters arrived early at CANSEC on Wednesday to denounce Canada’s sale of light armoured vehicles to Saudi Arabia, arguing the $15-billion contract should have been cancelled over human-rights concerns in the country.

“International human-rights organizations and the United Nations have provided ample evidence that Saudi Arabia uses weaponry, specifically armoured vehicles mounted with machine guns, to kill and injure unarmed civilians in both Saudi Arabia and Yemen,” said Kevin Shimmin of a group called Homes Not Bombs.

Protesters are expected to show up again on Thursday when Defence Minister Harjit Sajjan and Ms. Foote both speak on the final day of CANSEC.

Taxpayers could be on hook for bill after trade ruling questions $834M army truck contract

By: Lee Berthiaume, National Post 

OTTAWA — In a ruling that could cost taxpayers hundreds of millions of dollars, a federal trade tribunal has raised questions about the government’s handling of a military procurement project to buy desperately needed trucks for the army.

The ruling by the Canadian International Trade Tribunal represents the latest blow to Canada’s troubled military procurement system, which the Liberal government has vowed to fix without offering any details.

The vehicles were intended to replace a large part of the army’s existing truck fleet, which had been purchased during the 1980s and ’90s. Photo: 

In July 2015, the Conservative government announced that Pennsylvania-based Mack Defense, the military arm of the famed big-rig maker, had won a contract valued at more than $834 million to provide the Canadian Army with 1,500 specialized trucks.

The vehicles were intended to replace a large part of the army’s existing truck fleet, which had been purchased during the 1980s and ’90s. Many of those older trucks have been parked or sent to the scrap heap because of their age and to save money on maintenance and repairs.

Related
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Dave Perry: Our broken military procurement system

But Wisconsin-based Oshkosh Defense, which submitted its own truck design to the competition, challenged the government’s decision to award the contract to Mack Defense. Oshkosh alleged the department responsible for managing government purchases, Public Procurement Canada, had been unfair during design testing.

Late last week, the trade tribunal released a ruling calling on Public Works to re-evaluate Oshkosh’s design. If the results show the company should have won, the ruling says, then the government should compensate Oshkosh “for the profits it would have received had it been properly awarded the contract.”

If for some reason re-testing cannot be done, the government and Oshkosh are urged to negotiate compensation for the company’s “lost opportunity.” If they are unable to reach an agreement within 40 days, they are to go back to the tribunal.

Fortunately for the army, which is expecting the first new trucks to be delivered next year, the tribunal did not call on the government to push the reset button. “The Canadian International Trade Tribunal will not recommend that the contract awarded to Mack Defense LLC be cancelled,” the ruling reads.

Public Procurement Canada did not immediately respond to requests for comment.

Nonetheless, the ruling means taxpayers more than likely will have to foot the bill for the government’s error. It also reiterates the morass with which the entire military procurement system has been embroiled for years.

A large number of projects are facing delays, which has left the military lacking such vital equipment as resupply ships, or struggling to keep ancient equipment such as search-and-rescue planes in the air. Other projects are facing budget shortfalls that could result in fewer aircraft, ships and other pieces of equipment.

In addition, at a time of reduced military spending across the West, defence companies are fighting tooth and nail for every dollar. That includes resorting to legal challenges to try to scuttle the entire process in cases where their products lose.

The Liberal government has promised to fix the system, but has have offered few details on how that will happen. Defence Minister Harjit Sajjan has referred only to the government’s ongoing defence policy review, which isn’t expected to produce any results until next year.

Defence chief Gen. Jonathan Vance similarly dodged questions Tuesday about fixing the system, saying only that the government wants to be “innovative, both in process and in terms of where we put our efforts in the future.” He suggested that “bodes well for the country and for the armed forces.”

In the federal budget in March, the government announced it was pushing off $3.7 billion in planned equipment purchases for the foreseeable future. The government said such a “re-profiling” was necessary to ensure money was available when needed, but others such as retired general Rick Hillier said it was a budget cut.

Davie Applauds Irving's Pitch for Maritime Support Ship

By: David Pugliese, Defence Watch 

These are interesting days indeed in the defence industry. On Tuesday I reported in the National Post/Ottawa Citizen about Irving Shipbuilding’s new proposal to construct a ship specifically designed to aid in a humanitarian crisis.

The Nova Scotia-based shipyard would take a commercial roll-on/roll off vessel and convert it to carry a hospital, medical supplies and emergency equipment to respond to a variety of missions ranging from earthquake relief to providing aid to refugees.

Irving submitted the proposal Friday to the officials coordinating the Liberal government’s defence review.

The Liberal government has yet to respond to the proposal.

The firm is hoping to take advantage of the government’s interest in having the Canadian military play more of a role in humanitarian operations.

Irving president Kevin McCoy told the Ottawa Citizen it would take about one year to convert a commercial vessel into what the company is calling a maritime support ship.

“This is not an unsolicited proposal,” he said. “It’s in response to several of the key questions raised by the government’s Defence Review.”

The vessel would be offered to Canada for a five-year lease. The cost, under $300 million, would include the leasing of the ship, conversion of the vessel for its humanitarian role, a 30-member civilian crew to operate the vessel and maintenance for the lease period.

McCoy said the proposal would not undercut the government’s current shipbuilding strategy, which calls for the building of two Joint Support Ships. Construction of the first of those ships is expected to proceed in 2018 at Seaspan shipyards in Vancouver. The first of those ships would be ready in 2020.

Davie shipyards in Quebec is also converting a commercial vessel for the navy. That ship will be used on an interim basis to handle at-sea refueling for the navy’s warships.

Davie has also promoted the vessel’s ability to be of use during a humanitarian crisis.

What was interesting was the reaction from Davie. It took a “more the merrier” approach.

Davie issued a news release Tuesday commending Irving Shipbuilding on “taking a positive and innovative approach to solving some of the major capability gaps facing the Royal Canadian Navy and Canadian Coast Guard with regards to the current federal shipbuilding programs.”

“Realizing this, East coast shipyards in Canada’s key shipbuilding hubs in Nova Scotia and Quebec have pro-actively provided alternative, cost-efficient and innovative ways to convert existing commercial vessels to fill gaps in Canada’s non-combat fleet,” the firm noted.

Speaking at the CANSEC in Ottawa, Alex Vicefield, Davie’s chairman, said Irving Shipbuilding’s proposal “is confirming what has been universally recognized over the past months, including by the Government of Canada in the Canada Transportation Act review. That there are several classes of ship which Canada urgently needs and the current shipbuilding program is not capable of delivering. This is a great initiative from Irving Shipbuilding – these kind of unsolicited proposals where industry takes what it has learnt in how to provide fast-track, cost-efficient solutions to address critical operational gaps, is exactly what is needed right now.”

Vicefield said “these kind of interim and supplementary programs to ensure that we can close the capability gaps” are needed.

Meggitt to provide surface and aerial targets to DND

*Originally published by Frontline Defence News

DND has awarded Meggitt Target Systems (MTAS) a five-year Standing Offer, worth up to $35 million, for surface and aerial target systems (with provisions for two additional years).

The majority of these targets will be manufactured at the company's manufacturing facility in Medicine Hat, Alberta, with production deliveries expected later this year.

The target systems selected include Hammerhead, an advanced, unmanned surface vehicle target that can form part of a swarm threat simulation of up to 16 vessels, and Vindicator, an aerial target that can present the appearance of various aircraft profiles to radar, for naval weapons development and personnel training.

MTAS’ Managing Director, Peter Longstaff commented: “The Canadian Armed Forces are a longstanding user of Meggitt target systems and we are delighted to be able to support their training and test and evaluation requirements locally.

Report highlights economic impact of defence industry

Originally published by Frontline Defence News

Canada’s defence industry contributed $6.7 billion in GDP, $10 billion in revenues and 63,000 jobs to the Canadian economy in 2014, according to a new report developed by Innovation, Science and Economic Development Canada and Statistics Canada in collaboration with the Canadian Association of Defence and Security Industries (CADSI.

The report, State of Canada’s Defence Industry, 2014, was launched on the opening day of CANSEC 2016, Canada’s global defence and security trade show at the EY Centre in Ottawa.

“This study is important for both industry and government,” said CADSI President Christyn Cianfarani. “It is the most detailed and comprehensive study of the Canadian defence sector ever conducted and it confirms that Canada’s defence industry is high wage, export intensive, technology rich and pan-Canadian.”

The report indicates that Canada’s defence industry compensation is 60 per cent higher than the national average. The sector’s export performance is 60 per cent of sales, up from 50 percent in 2011. Engineers, scientists, researchers, technicians and technologists comprise over 30 per cent of the jobs in the defence industry, which highlights the innovative nature of the sector. Production workers make up another 40 per cent of the defence labour force.

“Companies that make up the Canadian defence industrial base—most of which are present here at CANSEC—and the types of jobs they offer, are what Canada needs and what governments should value in today’s global economy,” concluded Ms. Cianfarani. “With the recapitalisation of the Canadian Armed Forces currently underway, the Government of Canada has the opportunity of a generation to make the Canadian defence industry a source of innovation-led growth.”

CANSEC is Canada's global defence and security trade show, hosted by CADSI since 1998. Over the years, CANSEC has grown to a global show that welcomes over 11,000 registrants from Canada and abroad to see first-hand Canadian goods and technologies sought the world over.

The full report can be found at: www.madeacrosscanada.ca.

RCAF Ex. MAPLE FLAG Set for May 30th

DND Press Release:

Cold Lake, Alberta – National Defence / Canadian Armed Forces

Exercise MAPLE FLAG, the Royal Canadian Air Force’s largest and most complex international training event of the year, begins next week in Cold Lake, Alberta. Taking place between May 30 and June 24, Exercise MAPLE FLAG brings together up to 1300 Canadian Armed Forces (CAF) personnel in participant or supporting roles, and over 400 personnel from six allied and partner nations along with multiple aircraft including:
From Canada: CF-188 Hornet fighters, CH-146 Griffon helicopters, CP-140 Auroras, CC-177 Globemaster III heavy lift aircraft, CC-130 Hercules air-to-air refueling and transport aircraft, and contracted Dornier Alpha Jets;
From United States: C-130 Hercules aircraft and E-3 Sentry aircraft;
From France: Mirage 2000-5 and Rafale fighter aircraft; and
From the United Kingdom: E-3 Sentry aircraft.

This international exercise prepares Canadian and international aircrew, maintenance, and support personnel for the rigours of operations in the modern aerial battlespace. Exercises like this contribute to the operational readiness of the CAF so it can meet the likely tasks that the Government of Canada could assign.

“Exercise MAPLE FLAG is a direct contributor to the RCAF’s success in generating world-class air power. This exercise is a great opportunity to enhance our agility, reach, and power, while integrating with our domestic joint partners and allies.” - Major-General David Wheeler, Commander 1 Canadian Air Division

“We are pleased to once again host Exercise MAPLE FLAG in Cold Lake. The personnel of 4 Wing and CFB Cold Lake have been working hard over the past several months planning this incredible, fully immersive training opportunity for not only the Royal Canadian Air Force, but our international allies and partners. The outcomes of this exercise will undoubtedly provide those involved with the skills and expertise to operate effectively against any adversary.” - Colonel Eric Kenny, Commander 4 Wing Cold Lake

MAPLE FLAG Quick Facts
In recent years, Exercise MAPLE FLAG has begun to fuse with elements of concurrent exercises, such as the Canadian Army-led Exercise MAPLE RESOLVE.
Participants will use a fictitious scenario in which they will fight against simulated threats using the latest in tactics, weaponry, and technology. The goal is to hone their skills within a realistic, evolving, and challenging operating environment. This exercise is as close as it gets to the real thing.
Participants from allied and partner forces include:
The United States Air Force;
The United States Air Force Reserve;
The Kentucky Air National Guard;
The United States Marine Corps;
The Royal Air Force;
The French Air Force;
The German Army; and
The Belgian Army.

Exercise MAPLE FLAG takes place primarily inside the Cold Lake Air Weapons Range (CLAWR). This unique airspace permits the use of a variety of simulated and live weapons systems, as well as supersonic flight.

Oshkosh wins challenge on CAF Mack Truck Contract

By: David Pugliese

U.S. defence firm Oshkosh is alleging that the Canadian government unfairly awarded a $834 million contract that would see Mack Trucks deliver vehicles, such as the one in the photo, to the Canadian Forces. Photo courtesy Mack Trucks 

Oshkosh Defense Canada, Inc., an Oshkosh Corporation company, announced today that the Canadian International Trade Tribunal ruled in the firm’s favour regarding its legal challenge to the Medium Support Vehicle System’s Standard Military Pattern (SMP) contract award decision.

The CITT ruling recommends that Public Services and Procurement Canada re-evaluate Oshkosh’s bid and conduct a re-evaluation of vehicles for the project. Failing that the government could provide monetary compensation to Oshkosh.

The first of the new trucks, coming from Mack, have successfully undergone testing and are expected to be soon delivered to the Canadian Forces.

“We are pleased with CITT’s ruling, which validates our concerns and defends the fair and transparent procurement process that the Canadian Government strives to implement,” Wilson Jones, president and chief executive officer of Oshkosh Corporation, said in a statement. “Following years of work and investment, the Oshkosh team firmly believes we offered the most capable vehicle for the Department of National Defence, and overall best value for Canada. While we are disappointed in the significant errors found in the conduct of the MSVS evaluation process, we look forward to a fair and timely implementation of the Tribunal’s recommendations.”

As part of its determination, CITT recommended the following actions to the government:

Conduct a re-evaluation of the bid submitted by Oshkosh, including a physical re-evaluation of the vehicle test protocols, and/or payment of compensation to Oshkosh.
Compensate Oshkosh for its reasonable costs incurred in preparing and proceeding with the CITT complaint.

The contract, valued at $834 million, was awarded in July to Mack.

Following a four month review, the CITT in part validated Oshkosh’s claims related to procurement processes, technical compliance and testing protocols shortfalls during the MSVS SMP evaluation, the firm noted.

The Department of National Defence referred questions to Public Services and Procurement Canada. That department has yet to respond.

Perry: Defence Budget (not as bad as you think)

BY DAVID PERRY
© 2016 FrontLine Defence (Vol 11, No 3)

Budget 2016 provided a mix of good news, pleasant surprises and disappointing news for Canada’s military. Despite the scant discussion of the Department of National Defence (DND), the budget actually contained several noteworthy defence related items. DND received some modest new money for infrastructure upgrades, incremental funding for its operations in Syria and Iraq, its planned (but unmentioned) 2% increase to its defence escalator, and the third major deferment of DND’s budgeted procurement money in three years.

The latter measure has attracted by far the most attention, and coloured overall perceptions about the impact for DND. But if the 2016 Budget provides a window into the current government’s thinking about defence, it reflects, on balance, a slightly positive signal. The government kept the big budgetary promise it made during the campaign (the good news), introduced a spending review smaller, thus far, than pledged (some uncertainty), provided some unexpected, albeit small, cash infusions (the pleasant surprises), and continued a trend of deferring procurement funds (the disappointing news), but actually demonstrated how difficult it would have been to actually use the money.

The Good News
Despite pre-budget speculation to the contrary, there was no outright cut to DND’s budget in 2016. While two weeks prior to Budget day it was reported that there would be a $400 million reduction to the DND ‘budget’, this reference was to the cash-based spending in the Estimates. The Report on Plans and Priorities for 2016/2017 showed that final, year-end spending for Fiscal Year 2015/2016 was just over $19 billion, whereas the spending requested in the 2016/2017 Main Estimates was $18.64 B.

While the requested funding for 2016/17 is less than for the previous year, this is largely the result of DND asking for less money for Capital equipment funding than the year before, rather than an actual budget cut.

The requirements for Capital funding vary from year to year, so reductions in the amount requested do not equate to an actual cut to this funding.

Notwithstanding the slight year after year budget reductions, DND actually saw an increase to its baseline Vote 1 (Personnel, Operations and Maintenance) operating budget – as planned.

National Defence has a unique funding arrangement, whereby an automatic annual increase to its budget (known as the defence escalator) is built into the fiscal framework. This funding arrangement means that the department automatically receives a budget increase every year, unless otherwise indicated. While Budget 2016 made no mention of this funding, Department of Finance officials in the budget lock-up confirmed that this escalator was in fact provided.

Under the terms of the Canada First Defence Strategy (CFDS) funding arrangements, DND’s escalator increases by 2% each year. That is, each year, the amount by which the National Defence budget increases is 2% larger than the increase of the year before. Of note, this does not mean that either the defence budget (on an accrual basis) or defence spending (on a modified cash basis) actually increases by 2% annually. In fact, the impact of the annual increase to the defence escalator is less than a 2% rise in either the defence budget or defence spending. Nonetheless, the escalator does provide the department with a predictable funding increase, so long as no other cuts or freezes are applied to the defence budget.

The Harper government’s 2015 budget included a pledge that the annual escalator will increase to 3% annually for 10 years (between 2017/2018 and 2026/2027). In its campaign platform, the Liberal Party of Canada pledged to “maintain current National Defence spending levels, including current planned increases.” The additional $361 million DND received for 2016/2017 is evidence that the new Liberal government has stuck to that campaign commitment thus far.

The total absence of any mention that this campaign promise had been kept, however, is curious. What this means about future defence budgetary intentions, and whether DND will see its escalator increase by 3% in 2017, remains to be seen – will this migrate from the “good news” category to “uncertain” or “disappointing”?

Some Uncertainty
The Budget did provide an indication that the government will conduct a spending review – another campaign promise. Whereas the Liberal Party campaign platform had pledged roughly $3 billion in spending efficiencies, the 2016 Budget announced government-wide “annual reductions of $221 million in professional services, travel and government advertising.” This was described as “a first step” in the spending review, with a pledge that other changes would be forthcoming to “better align government spending with priorities.” The Finance officials in the federal budget lock-up were unable to provide any assessment of the impact of the measures announced so far to DND, however, since National Defence accounts for a fifth of Direct Program spending, it is unlikely that defence spending will be spared. So far, however, the spending review is far less aggressive than what had been discussed in the platform.

The Pleasant Surprises
Two modest budget measures were unforecasted good news for defence. First, DND received an unexpected increment for addressing its infrastructure requirements. The $200.5 million over two years is a modest boost for a department with tens of thousands of buildings and works across dozens of bases nationwide. It is nonetheless a welcome infusion of money in an under-resourced sector of its budget. The funding, to be dispersed across upgrades to jetties, air fields, ranges, housing units, reserve armouries and northern operating infrastructure, represents investments DND will no longer have to fund within its own budget.

The budget also contained incremental funding for the mission in Syria and Iraq. For most of the past decade, the Canadian military has funded some or all of its incremental expeditionary mission costs out of its existing budget envelope. For example, during the mission in Afghanistan, DND had to absorb over $3 billion dollars in operational costs out of its existing budget. Redirecting funding in such a manner to offset unforeseen contingency operations makes it difficult to conduct sound long term budget planning. If this indicates a return to the previous practice of providing DND with incremental funding for the bulk of its operational costs, it will be a welcome change. In recent years, the $306 million provided in Budget 2016 would have been redirected from other planned DND budget items.

The Disappointing News
The aforementioned items were all positive news for DND’s Operations and Maintenance, Personnel and Infrastructure funds. In contrast, the outlook for its Capital Equipment purchases wasdisappointing, as some of the funding that had been set aside in the fiscal framework for procuring Capital equipment was removed.

A total of $3.7 billion in DND’s accrual space that had been set aside in the fiscal framework between 2015/16 and 2020/21 was removed and redistributed evenly between 2021/22 and 2044/45. The accrual space is a budgeting construct that had been introduced with the CFDS in 2008. It set aside a portion of DND’s budget to account for the annual amortization expenses associated with the purchases of major defence equipment.

The funding construct is somewhat analogous to a home mortgage in the sense that, for most Canadians, the purchase cost of your home does not count against your monthly budget, and instead only your mortgage payment does. To relate this back to the Capital Equipment funding dynamic, while the Bank (in this case Finance Canada) has to pay the seller in full for the cost of your house (or for DND, Irving or Seaspan for naval ships), you only pay the Bank your monthly mortgage payment (for DND, its annual amortization charges for the ships). While you might have the money set aside to pay your monthly mortgage payments, if your real estate agent can’t actually close a deal for you to buy a house, you don’t actually have to pay your mortgage (even though you could have, financially).

The 2016 budget made clear by publishing a table depicting both the previous and revised profile of the accrual space that this basic dynamic explains why DND could not use all the money set aside.

The CFDS created the accrual space construct for DND in 2008 on the premise the DND could immediately start recapitalizing all of its combat fleets. To make full use, right away, of all the accrual space set aside for this recapitalizaiton would have required several 10s of billions worth of purchases and delivery of major equipment, in just a few years. While some progress has been made, the full scope of planned reinvestment simply has not happened on schedule, because the procurement system cannot move the money fast enough.

As a result, the Department of Finance is moving the money into the future, not to prevent purchases, but because DND has been unable to buy equipment.

In doing so, the funding was redistributed evenly over the subsequent 25 years, increasing the annual budget allotment for Capital equipment. This will actually provide defence with a small degree of additional flexibility to account budgetarily for additional equipment purchases in future years.

The reaction to the defence portions of Budget 2016 has been largely pessimistic, particularly within the defence industry, due to the reprofiled Capital funding. The defence section placed by far the largest focus on that budget measure, understated the impact of the infrastructure and operational funding, and did not mention the escalator increase at all, so this reaction is understandable. This sentiment also likely reflects a widely held expectation that the Liberals would reduce defence spending. For those expecting that outcome, the Budget certainly lent itself to that interpretation.

The Future
It is impossible to know, at this point, what the future intentions are. This Liberal government inherited a situation where the procurement system remains unable to make full use of the funding available. Realistically, the new government could have done little to fix that situation in only five months in office. After all, the previous government was unable (or unwilling) to do so in the decade they were in power. Thus, the government may have been happy, or not, to remove this funding from the fiscal framework and punt it into the future. It does not seem as though they had much choice. Whether they choose to fix this situation to prevent it from happening again in 2018 will be the true test of whether they were happy to save the money in this budget, or actually would have preferred to spend it.

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Dave Perry is the Senior Analyst of the Canadian Global Affairs Institute.

CAF Looks to Expand Arctic Footprint

By: David Pugliese, DefenseNews 

OTTAWA, Ontario — The Canadian military is looking at expanding its logistics footprint in the Arctic as it sets the stage for a bigger presence in the barren and isolated region.

Canadian officers say the improved logistics structure is required if the military is to meet the Canadian government’s objectives in the far north.

The Liberal Party government, elected in October, has signaled it is equally committed to ramping up operations in the Arctic as the previous Conservative government administration. But to do so will require extensive logistics support, a daunting task as Canada’s sparsely populated northern region consists of more than 1.5 million square miles and is larger in size than India.

As part of the improved logistics structure, the Canadian Forces wants to expand its Arctic Training Center, opened in 2013, in Resolute Bay, Nunavut. The facility, which can house and support 120 soldiers, has been used only in the winter months.

But now the military wants to provide more space for equipment and to allow for operations year-round. The facility is outfitted with over-snow vehicles and trucks.

“We need to build (on) what we’ve got right now in terms of capacity,” said Canadian Army Lt.-Col. Luc St-Denis, who co-ordinates training at the center and who oversaw its initial development. “January to April is a small season. There is potential for more than that, especially in the springtime and summertime.”

The center could be expanded so more equipment is able to be pre-positioned, St-Denis said. That would cut down on costs of airlifting supplies or chartering aircraft, he added.

In 2013 the Canadian Army determined that conducting operations in the Arctic was five to seven times more expensive than those in southern Canada. In 2012, then-defense chief Gen. Walter Natynczyk acknowledged that supporting missions in the far north was tougher than in war zones such as Afghanistan.

St-Denis pointed out that everything needed for the Canadian Forces to operate in the far north must be brought in from the southern part of the country. He noted that other Canadian government departments could use the expanded training center as a staging area for research projects.

In addition, as part of efforts to overcome logistics problems in the Arctic the Canadian Forces is establishing what it calls northern operations hubs or NOHs. The NOHs will allow initial rapid deployment and up to 30 days of sustained operations in the Arctic.

The locations of the primary NOHs are Iqaluit and Resolute Bay, both in Nunavut, as well as Yellowknife and Inuvik, both in the Northwest Territories, the Canadian Forces said. Alternate hubs will be in Rankin Inlet, Whitehorse, Cambridge Bay and Hall Beach.

The Canadian military is using the Arctic Training Center at Resolute Bay, Nunavut, in the Northwest Territories, for a few months each year. (Photo: Canadian Armed Forces)

The planned NOHs are, by design, pre-negotiated arrangements to facilitate the movement of people, materiel, equipment and supplies. The arrangements would vary but could be with civilian aircraft operators in the region for transportation to local native communities for the provision of fuel, supplies and accommodation.

“The CAF (Canadian Armed Forces) is still planning to establish all the NOH by 2018,” said Capt. Thomas Edelson, spokesman for the Canadian Joint Operations Command Headquarters, which is responsible for domestic and international missions.

Also expected to be operating in 2018 is a naval refueling station at Nanisivik, Nunavut. The previous Conservative government had proposed a major upgrade to the deep-water port at that site but because of high construction costs in the Arctic the price tag for the project jumped to more than (CAN) $250 million (US $187 million).

As a result the government scaled the project back to a refurbished dock and fuel tank farm at a cost of (CAN) $116 million. Work began in the summer of 2015 on that project.

Since 2006 the Canadian government has emphasized its intention to significantly boost the military presence because oil, gas and minerals in the Arctic are critical to the country’s economic growth. The Conservative government approved construction of a fleet of new Arctic Offshore Patrol Ships and a Polar-class icebreaker. Neither have been built yet, although construction of the first Arctic patrol ship is underway. The first ship is expected to be ready by 2018.

The Liberal government has reiterated the need for an Arctic presence and has stated it will carry on with the various projects as well as boost surveillance in the far north.

The difference between the two governments is how they approach relations with the Russians.

Conservative Prime Minister Stephen Harper warned that Russia’s growing military presence in the Arctic posed a challenge to Canada, adding that the Russians were expanding their bases and other defense infrastructure in the region.

But the Liberal government has signaled it is interested in a thaw in relations. Foreign Affairs Minister Stéphane Dion suggested in January that the Conservative government’s policy was not effective and it was time to work with the Russians in areas of common interest such as the Arctic.

“Canada was speaking to the Russians even during the tough times of the Cold War,” Dion noted. “And now we are not speaking because of the former policy, of the former government. In what way is it helping our interests in the Arctic?”

Canada’s defence in crisis? Who cares?

BY CHRIS MACLEAN
© 2016 FrontLine Defence (Vol 11, No 3)

These questions, particularly the last one, keep surfacing lately, especially within the groups who are tasked with our safety; those who have chosen to serve and protect. In the last edition of FrontLine,Don Macnamara was reminding politicians that safeguarding Canadian citizens and protecting their way of life is the prime directive of government. This great responsibility stands firm, no matter what the polls suggest or how the social winds blow. This is one requirement for which Government must act without necessarily asking for approval of the masses. Some things are just expected of a leader.

Do Canadians know about the huge number of international issues that can affect our future security? Maybe a few. Do they ask if we are really prepared to deal with them? Why would they, when they assume the authorities have prepared?

Do they know (or care) that our national interests – security, sovereignty, prosperity, and a stable world order – are pre-requisites to the enviable standard of living enjoyed by the average Canadian? Of course they do. Do they take it for granted? Of course they do, after all, this is Canada – one of the great nations of the world, right?

How many of your neighbours really understand the implications of living in the second-largest country on Earth, with the world’s longest coastline on three oceans? How aware are Canadians that 40% of our national territory is that “True North” that we sing about – and that we really cannot defend it?

As for the defence of our country and the pursuit of a stable world order, do average Canadians have any idea of the major equipment crises facing its military? Sure, the military has taken the brunt of many cartoons depicting the sad state of equipping the Canadian Armed Forces, but the real target of those jokes should be the government that wields the decision-making authority.

One might assume that every federal politician would understand the importance of being properly versed and advised on matters related to the military, and that it would be incumbent on them to learn as much as they could so they can make informed decisions in Parliament. You would be wrong. Last month, two Liberal MPs cancelled delivery of their free copy of FrontLine Defence. They feel no more responsibility in this matter than my nephews do. Another two people at PCO also cancelled. How can we expect the general public to care about defence, when our very MPs and Privy Council office avoid anything about defence other than, possibly, what they are being spoon-fed?

MPs should not only be learning as much as they can about national defence, they should take great pains to explain it to their constituents.

How many politicians have any idea that the real crisis facing their Navy, in terms of available warships or the impact and limitations on multi-ship operations, is a result of the loss of its two support ships? Beyond that, having only xx warships for a maritime nation our size, and no real plan to replace them in a timely manner, nor any real idea how many we can afford (yes, those x’s were intentional), should be the stuff of a national scandal. Few know, but how many would care even if they knew?

Similar questions can be asked about the vehicles and modern weaponry needed by the Canadian Army. The fighter replacement of the RCAF is better known, but only due to controversy. Are Canadians aware that, in the not too distant future, replacement of air-to-air refuelling capabilities, as well as maritime patrol aircraft, are going to be required?

Major equipment should never be political issues; defence procurement should be done in the national interest. This is an essential question as the Government launches into its public consultations for a Defence Policy Review.

It is important that we avoid cynicism about the possible outcomes of the defence review by assuming it will be “same old thing”. For generations, Canadians and their dedicated servicemen and women have suffered from financial starvation combined with irrational procurement processes.

How can real military defence needs be met when governments continue, essentially, to set a budget and then figure out what it can buy without first determining what its national interests are so it knows if these purchases are necessary or not?

Does Canada have to wait for a huge domestic terrorism event before the public wakes up to the risks this country faces with an impoverished military? Our allies admire the performance of the CAF – but wonder why they are so few from such a large and wealthy country of such strategic relevance. It should not be necessary to frighten the population to create demand for a larger and better-equipped military. The government should recognize this without the need for a public outcry, because that won’t come until it is too late.

Is DND – with the largest ‘discretionary’ budget in government – viewed simply as a money tree that can be cherry picked for surpluses to be transferred to other departments? Do senior bureaucrats consider themselves part of the national security nexus? If not, why not, if the first responsibility of government is the security of Canada.

Is the nature of our globalized world recognized and understood by ALL government departments? If not, how can we ever achieve a ‘whole of government’ response to threats to Canada’s world order, prosperity and security and sovereignty issues and threats. Why is there not a Government document that assesses the international security environment and provides ‘policy guidance’ for all departments? Is it because our Government lacks interest, capability or competence to achieve what most other nations have?

Politicians are not elected because they understand the intricacies of international security affairs. Yes, some former military members have served in Parliament – very few until the current Parliament that has at least a half-dozen veterans. But defence policy has been a partisan activity, leading to budget and procurement changes with every new Government. Is there any good reason why a national security assessment and strategy cannot be produced on a non-partisan basis?

How do Canadians learn anything about defence? Media coverage by military specialists is slim – but there are others who, with limited knowledge and understanding, write with assumed authority, often misrepresenting situations and creating political issues that are subsequently addressed by politicians who do not understand the issues either.

So, will our MPs communicate with Canadians to inform them not only of the rationale for the number of soldiers, sailors and aviators we need to defend Canada, but also the implications of failing to do so?

It has been said that the most important social service a government can provide is the means to keep its citizens alive and free.

If Canadians do not know or do not care about the nation’s defence, clearly the first problems are national ignorance and national apathy. Those problems are unacceptable for a Canada that must survive and prosper in a dangerous world.

U.S. prepares to send troops to Libya. Will Canada follow?

By: David Pugliese, Defence Watch 

In 2011 the Canadian government and military joined with other nations to overthrow Libyan dictator Moammar Gadhafi.

(Then) Prime Minister Stephen Harper, middle, gets a tour of Canada's CF-18s by Lt.-Col. Daniel McLeod, left, and Gen. Charles Bouchard prior to delivering a speech at Camp Fortin on the Trapani-Birgi Air Force Base in Trapani, Italy. After seven months in the country, the Canadian Forces will be back in Canada Friday. (Sean Kilpatrick/Canadian Press)

The Canadian government and military played key roles in overthrowing Gadhafi and highlighted those efforts as a significant victory both for Libya and Canadians.

At the time then Foreign Affairs Minister John Baird reinforced Canada’s support for the rebel groups fighting Gadhafi, pointing out they had a well developed plan that would transform the country into a democracy. “The one thing we can say categorically is that they couldn’t be any worse than Col. Gadhafi,” said Baird.

But there was no plan. In fact, Canada and other nations who took part in the Libya war ignored intelligence that among the freedom-loving “rebels” were Islamic extremists.

The country promptly fell apart into a new civil war. The Islamic State has carved out portions of Libya for its staging and training areas. Other Islamic extremists have their portions of the country.

In September 2014, Prime Minister Stephen Harper defended Canada’s role in Libya, suggesting that neither it nor NATO can be held responsible for the chaos that has since engulfed that country.

Now it seems the U.S. military is getting ready to send troops back to Libya. The Canadian government has suggested it could follow.

Here is some background reading on the developing situation. The two articles below were written by the Associated Press:

The number of Islamic State militants in Libya has doubled in the last year or so to as many as 6,000 fighters, with aspirations to conduct attacks against the U.S. and other nations in the West, says the top U.S. commander for Africa.

Army Gen. David Rodriguez, head of U.S. Africa Command, said that local Libya militias have had some success in trying to stop the Islamic State from growing in Benghazi and are battling the group in Sabratha. But he said that decisions to provide more military assistance to the Libyans await a working national government.

The latest numbers for IS in Libya make it the largest Islamic State branch of eight that the militant group operates outside Iraq and Syria, according to U.S. defense officials. The officials were not authorized to provide details of the group and spoke only on condition of anonymity.

The U.S. has conducted two airstrikes in Libya in recent months targeting Islamic State fighters and leaders, but Rodriguez said that those are limited to militants that pose an “imminent” threat to U.S. interests. He said it’s possible the U.S. could do more as the government there takes shape.

The U.S. and its allies are hoping that a U.N.-brokered unity government will be able to bring the warring factions together and end the chaos there, which has helped fuel the growth of the Islamic State. The U.S. and European allies would like the new government to eventually work with them against IS.

The U.S., France and other European nations have sent special operations forces to work with Libyan officials and help the militias fight. In February, American airstrikes hit an Islamic State training camp in rural Libya near the Tunisian border, killing more than 40 militants. And last November, a U.S. airstrike killed top Islamic State leader Abu Nabil in Libya. He was a longtime al-Qaida operative and the senior Islamic State leader in Libya.

Rodriguez said, however, that it will be a challenge for the Islamic State to become as big a threat as it is in Iraq and Syria because of resistance from local Libyan fighters and the population, which is wary of outside groups.

He said the militias in Libya have fought Islamic State militants in Benghazi and Derna with some success, and fought hard in Sabratha with more limited gains. Efforts to battle the group in Sirte have not worked as well, he said. Their biggest problem, he said, is that often the militias fight among themselves.

“It’s uneven and it’s not consistent across the board,” Rodriguez told reporters at a Pentagon briefing. “We’ll have to see how the situation develops, but they are contesting the growth of ISIS in several areas across Libya, not all of it.”

Asked if waiting for the new government to form will allow the Islamic State more time to gather momentum, Rodriguez downplayed the risk.

“It’s going to be a challenge for them to get to that point because of the Libyan population, people and militias that are out there,” he said. “It could be a bigger fight and everything. But again, we’re watching that very carefully and taking action as we see those threats develop.”

SECOND ASSOCIATED PRESS ARTICLE

In a move fraught with risk, the United States and other world powers said they would supply Libya’s internationally recognized government with weapons to counter the Islamic State and other militant groups gaining footholds in the chaos-wracked country’s lawless regions.

Aiming at once to shore up the fragile government, and prevent Islamic State fighters and rival militias from further gains, the U.S., the four other permanent U.N. Security Council members and more than 15 other nations said they would approve exemptions to a United Nations arms embargo to allow military sales and aid to Libya’s so-called “Government of National Accord.”

In a joint communique, the nations said that while the broader embargo will remain in place, they are “ready to respond to the Libyan government’s requests for training and equipping” government forces.

“We will fully support these efforts while continuing to reinforce the UN arms embargo,” the communique said.

With support from all five permanent members of the U.N. Security Council, the plan is unlikely to face significant opposition from any quarter.

The communique was issued at the end of the talks that gathered U.S. Secretary of State John Kerry and top officials from more than 20 other nations to discuss ways to strengthen Libya’s fledgling government. The aim is to give the internationally recognized administration more muscle in fighting Islamic State radicals and end its rivalry with a group to the east claiming legitimacy.

The step will boost the government’s efforts to consolidate power and regain control over Libyan state institutions like the central bank and national oil company. However, it also comes with risks, not least of which is that the arms may be captured or otherwise taken by the Islamic State or other groups.

Kerry called the plan “a delicate balance.”

“But we are all of us here today supportive of the fact that if you have a legitimate government and that legitimate government is fighting terrorism, that legitimate government should not be victimized by (the embargo),” he told reporters.

Libyan Premier Fayez al-Sarraj said his government would soon submit a weapons wish list to the Security Council for approval.

“We have a major challenge ahead of us,” in fighting extremists, he said. “We urge the international community to assist us.”

Before the meeting, German Foreign Minister Frank-Walter Steinmeier outlined the high stakes at hand.

“The key question is whether Libya remains a place where terrorism, criminal human smuggling and instability continue to expand, or if we are able, together with the government of national unity to recover stability,” he told reporters.

The challenges are daunting.

Libya descended into chaos after the toppling and death of Moammar Gaddafi five years ago and soon turned into a battleground of rival militias battling for powers. More recently, the power vacuum has allowed Islamic State radicals to expand their presence, giving them a potential base in a country separated from Europe only by a relatively small stretch of the Mediterranean Sea.

Also worrying for Europe is the potential threat of a mass influx of refugees amassing in Libya, now that the earlier route from Turkey into Greece has been essentially shut down. British Foreign Secretary David Hammond said his government had received a request from the Libyan government to bolster its Coast Guard — a project “which will address Libyan concerns about smuggling and insecurity on their border but will also address European concerns about illegal migration.”

In Libya, meanwhile, the U.N.-established presidency council on Monday effectively gave the go-ahead for 18 government ministers to start work, even though they have not received backing from the parliament.

The council was created under a U.N.-brokered unity deal struck in December to reconcile Libya’s many political divisions. It won the support of a former powerbase in the country’s capital, Tripoli, but failed to secure a vote of confidence by the country’s internationally recognized parliament, based in Tobruk, a city in eastern Libya.

The U.N. deal also created the internationally recognized government, through a de facto Cabinet to administer the country under Prime Minister-designate Fayez Serraj and the 18 ministers will answer to him.

Divisions in the Tobruk parliament between boycotters and supporters of the new government have prevented the house from reaching a quorum to endorse the council.