DND Needs $54M in Additional Funds to Evaluate CSC Fleet Proposals

By: David Pugliese, The National Post

The Department of National Defence needs an extra $54 million just so it can examine the bids from companies hoping to build it a new fleet of warships — an indication of the growing expense of a program that has more than tripled in cost over the years.

HMCS Ottawa, one of the Royal Canadian Navy's Halifax-class frigates that will be replaced by the eventual arrival of the Canadian Surfance Combatant Fleet. Roslan Rahman/AFP/Getty Images

The funds are not earmarked for anything to do with the actual construction of the ships, but instead to fund DND’s evaluation of the the bids this year — and they would be in addition to the $39 million the department has already received to review the bids, according to defence sources.

The cost of the new Canadian Surface Combatants, which will replace the existing Halifax-class frigates, has steadily been climbing. The 15 ships were originally estimated to cost $15 billion. That increased to $24 billion before DND came out with a new estimate of around $40 billion. That too has since changed, and the project is now estimated to cost between $55 billion and $60 billion — and even then, the federal government acknowledges it doesn’t know what the program’s final cost will be to taxpayers. Parliamentary budget officer Jean-Denis Fréchette estimated last year the CSC program would cost $61.82 billion, and warned that every year the awarding of the contract is delayed beyond 2018, taxpayers will spend an extra $3 billion because of inflation.

Despite the Liberal government’s repeated statements about openness and transparency, it took Postmedia more than three months to get basic information from DND about its request for new funding, and even then, the details provided are limited.

“These funds will permit the project to maintain the Project Management Office and to continue work under the Definition Support Contract with Irving Shipbuilding Inc. for the remainder of this fiscal year,” the DND said in an email. “This funding will primarily support the Request for Proposal, bid evaluation and preparations for the design services contract.”

The money will cover salaries and benefits for the 135 military and civilian staff at the DND who are assigned to the project office, the department said, and will also be used to train staff and upgrade their offices.

Prospective builders of the new warships submitted their bids on Nov. 30, and a winning bid is expected to be selected sometime this year. Halifax-based Irving Shipbuilding will begin construction of the first ship in the early 2020s and delivery of the first vessel is expected in the mid-2020s, according to the federal government.

Artists rendering of a BAE Type-26 Global Combat Ship with the Royal Canadian Navy Ensign - a proposed design for the Canadian Surface Combatant Fleet. 

Defence analyst Martin Shadwick said that without more detail of how the funds will be spent it’s hard to determine whether taxpayers are getting value for money. “But it seems a very high cost to run a project office for a one-year period and to evaluate bids,” added Shadwick, a strategic studies professor at York University in Toronto.

The surface combatant project, intended to provide the backbone of the future Royal Canadian Navy, has long been controversial.

In a surprise twist in November, a French-Italian consortium declined to formally submit a bid, instead offering Canada a fleet of vessels at half the price. Fincantieri of Italy and Naval Group of France don’t believe the established procurement process for the surface combatant program, already beset with delays and increasing costs, will be successful.

They instead proposed that Irving Shipbuilding construct 15 ships based on the consortium’s proven FREMM frigate design, currently in operation in both the French and Italian navies, among others, and guaranteed a fixed price of $30 billion. Thier proposal also focused on using Canadian technology on board the ships, and would have transferred technology to Canadian firms so they could be involved in future sales of the FREMM vessels on the international market. Under the plan, Irving would have been able to start building the warships almost immediately.

The Canadian government, however, rejected the offer.

Italian Navy Alpino FREMM Frigate. Italy ordered 10 FREMM Frigates. The FREMM is currently operated by the Italian Navy, the French Navy, the Egyptian Navy, and the Royal Moroccan Navy. 

DND owes Federal Treasury $147M for Unauthorized Expenses

By: Murray Brewster The Canadian Press

OTTAWA — The Trudeau government has absolved Canadian Forces members of liability after National Defence was ordered to repay more than $147 million in unauthorized expenses incurred by members of the military over nearly a dozen years, The Canadian Press has learned.

The department acknowledged five years ago it had made a mistake when it allowed soldiers and civilian staff to claim some travel expenses and benefits that fell outside of federal guidelines.

The practice went on between April 1999 and January 2011, but was then halted following an independent analysis.

The Liberal government has ordered National Defence to reimburse the Treasury Board for unauthorized expenses incurred by members of the military for nearly a dozen years. File Photo

At the time, the military said the mistake involved "tens of millions of dollars" over five years and that it would try to get the federal Treasury Board to cover the expenses, which included the cost of sending family members of fallen Canadian soldiers to visit Kandahar during the war in Afghanistan.

Other expenses included reimbursing travel fees for troops deployed in different parts of Canada, bonuses for overseas postings and allowances for soldiers assigned away from families.

The deputy commander of the military, the now-retired vice admiral Bruce Donaldson, said in 2011 that he was hopeful Treasury Board — the department that manages federal spending — would retroactively approve many, if not all, of the payments in order avoid forcing members to pay back the money.

Treasury Board spokesman Jean-Luc Ferland said Tuesday that the decision to have DND repay these funds was made under the previous government in 2013 and payments immediately began to flow.

"What was left to do for this Government was to absolve of liability all CAF members who may have erroneously received benefits by no fault of their own, but rather because of a misinterpretation of rules at National Defense," he said in an email.

"Since discovering those errors, DND and the CAF have amended their rules to prevent this from happening again."

No one in the department, or the Liberal government, could explain why the amount wasn't simply written off the federal books.

Jordan Owens, a spokeswoman for Defence Minister Harjit Sajjan, said she wasn't able to comment on what went on before the Liberals took over. But she said the department felt the need to assume responsibility for the error.

"Our request to Treasury Board was that DND will pay back these debts, over the course of several years," she said.

"Partisan politics aside, I don't think anyone thinks (Canadian Armed Forces) members should be liable for money they believed they were receiving in good faith."

Dave Perry, an analyst with the Canadian Global Affairs Institute, was startled not only by the figure, but also the fact that the debt stretches back over 17 years.

"It's beyond bizarre that you be going back that far," Perry said.

"I don't understand what the point might be. It is money that was authorized by Parliament over the course of three governments and spent. And it seems to be a case of the left hand of government giving money to the right hand."

Part of it seems to be a regulatory, for-the-record exercise that formally absolves members of military from having to repay the cash themselves. Those who received the payments have been released from liability by the cabinet order, said National Defence spokeswoman Laura McIntyre-Grills.

What she did not reveal was how many years it will take the department to repay the debt.

Perry said he is concerned what — if anything — National Defence will have to forgo as a result of its decision to assume the liability.

"There are all kinds of good things that could have been planned with this money," he said. "Will this impact training? Will it impact national procurement funding?"

One of the reasons it has taken five years to sort out the issue is that after the error was discovered, defence officials ordered a more comprehensive assessment of the benefits system, said McIntyre-Gills.

"In 2011, the DND and the CAF discovered specific payment errors during a standard internal audit," she said.

"This initial discovery resulted in a more extensive review of other benefits and, thus, subsequent discoveries of unauthorized payments. In 2011, an independent external agency reviewed the circumstances of the unauthorized payments and found no evidence of wrongdoing, and that benefit payments had been made in good faith."

Defence Minister to announce Public Consultations on new Defence Policy

Written by David Pugliese, The National Post 

Defence Minister Harjit Sajjan will announce Wednesday the beginning of public consultations on the country’s new defence policy.

Sajjan says he wants to have the policy completed by the end of the year.

The review would include details on the future size of the Canadian Forces, its roles and alliances and the type of missions it can expect to take on in the future.

Government sources told Postmedia Tuesday that they expect the public consultations to be finished by the end of July.

Department of National Defence sources say they expect to be flooded with presentations from defence analysts, groups and lobbyists pushing for more funding for the Canadian Forces as well as a plea to resist cutting back on the current size of the military.

But it is expected the Liberal government will follow the path it has already outlined during the federal election and move ahead in developing an “agile and lean” Canadian Forces.

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Retired general Rick Hillier, the former chief of the defence staff, has advocated cutting the size of the military. He has argued that would ensure the organization remains stable and effective; Hillier pointed out that the size of the Canadian Forces could be reduced from the current size of around 66,000 to 50,000.

The Liberals are also committed to a continuation of the current military roles in defence of Canada and North America, working with the U.S. military on alliances such as NORAD and maintaining key alliances such as NATO.

In addition, the Liberals want to return to contributing militarily to United Nations missions, both in peacekeeping and disaster relief, defence sources tell Postmedia.

Canada’s role on UN operations was significantly scaled back under the Conservative government’s tenure.

Military equipment programs will not be looked at specifically but instead defence procurement would be address more broadly, Sajjan has noted

Sajjan has also said the review will examine how the military looks after its personnel as well as Canada’s capabilities to fend off cyber attacks.

Military equipment programs will not be looked at specifically but instead defence procurement would be address more broadly, Sajjan has noted.

The Liberal government has also stated it would renew focus on surveillance and control of Canadian territory and approaches, particularly in the Arctic regions. It would also follow the Conservative government’s earlier approach and increase the size of the Canadian Rangers, which provide the eyes and ears for the military in the far North.

During the election the Liberals also promised they would “launch enhanced icebreakers.”

But Postmedia has confirmed with government sources that the term “enhanced icebreakers” is a reference to what was already promised under the Conservative government’s national shipbuilding strategy. The Liberals do not intend to purchase additional icebreakers.

The review is also expected to look at funding and whether Canada can afford the equipment the military wants. The Senate defence committee was recently told that the gap between what the Canadian Forces says it needs for the future, and the amount of funding that had been proposed for the future, is in the tens of billions of dollars.

This story has been updated with a response from Defence officials.

CAF Equipment Funding Billions Short

Written by Murray Brewster, The Canadian Press

OTTAWA — A Senate committee has been told there is a shortfall of tens of billions of dollars between funding that's been set aside for military equipment and the actual price tag for what the military says it needs.

Defence analyst Dave Perry of the Canadian Global Affairs Institute testified that the "mismatch" is one of the biggest problems facing the new Liberal government as it seeks to overhaul the country's defence policy.

"At present, the defence procurement system is trying to buy more equipment that DND can afford," said Perry. "There is roughly three times more demand for project funding than there are available funds, leaving the capital acquisition budget short by several tens of billions of dollars, even with the planned increase to the defence budget that the government has promised to honour."

There are at least 100 pieces of equipment that Defence has deemed essential to fulfil its mandate in the coming years and only a portion of that list is funded, he said.

The dysfunctional military procurement system was a bane to the former Harper government, but despite reforms implemented two year ago, roughly 63 per cent the projects listed in the federal government's defence acquisition guide are late and only 34 per cent are on time.

Perry says since 2007 a total of nearly $9 billion in allocated capital funding for military hardware was not spent and much of that went back to the federal treasury.

He noted the figure rose significantly in the last budget year, which concluded in March 2015 and saw $1.5 billion in funds earmarked for purchasing capital equipment go unspent.

The Harper government introduced its much-heralded Defence Procurement Strategy in February 2014, an initiative meant to streamline the process and leverage the participation of Canadian industry.

But Perry told the Senate defence committee that the effort has not yet produced results.

"To be blunt, I hope the new government finds that lack of progress unacceptable," he said.

The Liberals promised a comprehensive defence policy review to replace the former Conservative government's 2007-era Canada First Defence Strategy. That document had a list of planned equipment purchases, but within 18 months of its publication National Defence privately deemed some of the projects unaffordable.

The new review — the first comprehensive analysis since the Chretien government's 1994 defence white paper — is key for tough decisions the Trudeau government will have to make, including how to replace the Air Force's aging CF-18 jet fighters.

Defence Minister Harjit Sajjan has said he wants the policy review completed by the end of the year — a commitment he reinforced last week in a speech to the Canada 2020 think-tank.

Murray Brewster, The Canadian Press