Procrustes, 11 August 2020.
The recent confirmation that the Parliamentary Budget Officer (PBO) will conduct and deliver yet another report on the mounting costs of Ottawa’s preferred bid winner for the Canadian Surface Combatant (CSC) program in October 2020 could lead to a reversal of course on this slowly evolving program.[1]
The PBO has already issued two reports on CSC costs, and the latest one is unlikely to reassure those who think that Ottawa is backing the wrong horse. Why? Because the coming update will likely show that the CSC program will now cost in excess of $70 billion in current year funds. The initial June 2017 PBO study, “The Costs of Canada’s Surface Combatants,” estimated the total CSC costs to be $61.82 billion. In the same year, the Department of National Defence (DND) revised its original 2008 estimate of $26.2 billion to $56-60 billion. The PBO updated its initial report in June 2019 and pegged the revised CSC costs at $69.8 billion.[2]
Moreover, the fall report will also include costing of two other, more economical, warship options to be constructed by foreign shipbuilders. The British Type 31 frigate will be built for the Royal Navy as a lower cost complement to the Type 26 frigate. Italy’s Fincantieri Marine recently won the contract to build a variant of its FREMM frigate under the US Navy’s FFG(X) program. In December 2017, Ottawa rejected an offer from Fincantieri to build 15 frigates in Canada for a fixed price of $30 billion. The PBO will likely report that both the Type 31 and the FREMM are much cheaper options than the Lockheed Martin Canada Type 26 CSC currently under negotiation by Ottawa.
The new PBO report will come at a bad time for both the navy and the prime contractor, Irving Shipbuilding. Ottawa is currently looking for ways to pay for the massive relief programs launched to help Canadians weather the storm unleashed by the global Covid-19 pandemic and to help the national economy to recover. In this context, the prospect of paying for a bloated ship replacement program is unlikely to resonate positively with the federal cabinet. And concrete evidence from the PBO that there are cheaper options to the Type 26 available may be all that our politicians need to start a serious rethinking of the CSC program in its entirety.
Canada does not need the latest and greatest frigate available on the market, especially a design that will be pushing the technological envelope in some high-risk areas like an untested phased array radar system.
Canada is now facing the new reality of defence budgetary constraints and steadily rising costs of naval weapons systems. It is not alone in this respect as all major navies are now exploring ways to replace high-cost surface combatants with cheaper alternatives.
What Canada does require are greater numbers of sufficiently capable – and financially affordable – warships to protect Canadian interests at home and abroad. It does not need a floating Potemkin Village.
References
- David Pugliese, “PBO to examine $60 billion price tag of new warships and compare to other less expensive foreign programs”, Chronicle Herald, (8 August 2020).
- See, Canada, Parliamentary Budget Officer, “The Costs of Canada’s Surface Combatants”, (1 June 2017), and “The Costs of Canada’s Surface Combatants: 2019 Update”, (21 June 2019). The latter report attributed to cost increase to the inflation costs of a later construction start date (still to be determined in ongoing contract negotiations), and Ottawa’s selection of a larger ship design.
7 thoughts on “More CSC Cost Woes”
Procrustes: I have read your article “More CSC Cost Woes” with great interest but it has left me scratching my head a bit. These PBO reports have been part of the CSC process now for several years with estimates that are just that…..estimates. If you take a closer look at them you will see that the PBO also include taxes injected into the costs of the CSC program which are not included by DND reports. The costs included in the 2020 PBO report will no doubt be greater than the 2019 report, but not out of line. Yes, COVID-19 has taken its toll on the federal budget and we will all be paying for it for years to come, however, we should not let a ‘virus’ dictate other departments’ budgets that have been committed by the government on such a crucial program for Canada and the RCN. If we give in to COVID-19, then we have already lost. How do you know what the Fall 2020 report of the PBO will include? Do you have a crystal ball or perhaps you have an inside track with the PBO office? Ottawa has already committed to procuring 15 of these CSC ships to the Canadian people and the military. It would be political suicide for the government to shut down this NSS program now. The Lockheed Martin (LM) SPY 7 (V) 1 LRDR characteristics have already been borne out with LMs testing site and is ready to proceed to ship fitting. It is a key element to the CCMS 330 system. What concrete evidence do you have that the PBO has other frigate options for the government to consider? If you truly believe that cheaper options with lesser capabilities to buy more ships is the way to go, how are you calculating “more sailors” into this option for your “greater numbers” fleet size? DND has always faced defence budgeting constraints. There is nothing new there. Let’s let the PBO office do its job and not speculate on what will or should happen in the future.
David, let me offer the following in response to your queries, observations, and suggestions:
1. I agree that the PBO’s Fall CSC Cost Update will likely contain slightly higher estimates for CSC costs than in its previous two reports. In keeping with its earlier findings, the likely cause of this increase will be inflation.
2. My point of departure with you on CSC costs is that I think that these costs are already ‘out of line’ when compared to the costs of similar ships now being built for similar purposes in other countries. I have made this point in several other posts in this Forum. I also welcome the prospect that the PBO’s coming cost comparison will likely make this clear. I admit I could be wrong.
3. Like you, I too hope that the government will proceed with replacements for the Halifax-class frigates, but I am becoming increasingly skeptical that (a) the Lockheed Martin Canada Type-26 is affordable or desirable, and (b) that the government will fund the design as currently configured. As you have previously indicated in this Forum, numbers may be reduced, and capabilities may be reduced as well.
4. Without owning a crystal ball, I am confident about the substance of the PBO’s update because the PBO posted its Information Request: IR0502 (6 July 2020) on its website. That request was itself prompted by a request from the House of Commons, Standing Committee on Government Operations and Estimates for the PBO to “undertake an analysis of the construction cost of the Canadian Surface Combatants, as compared to the FREMM and Type-31 frigates.” The PBO request for relevant information from DND and the Department’s response can be found at:
https://pbo-dpb.gc.ca/web/default/files/Documents/Info%20Requests/2020/IR0502_National_Defence_CSC_and_alternatives_ltr_e.pdf
https://pbo-dpb.gc.ca/web/default/files/Documents/Info%20Requests/2020/IR0502_response_b.pdf
5. Your point about cheaper options possibly requiring ‘more sailors’ for ‘greater numbers’ is well taken, and is one that I mentioned in a previous Forum post. However, many of the smaller/cheaper ship options require far smaller size crews, so the fleet-wide human resources demands may be reduced or comparable when all is said and done.
6. You are certainly correct in stating that ‘DND has always faced defence budgeting constraints.’ However, to also argue that ‘There is nothing new there’ greatly understates the impact Covid-19 has already had on ‘normal’ budgets, and the seriously heightened impact it is sure to have for many years to come. For example, many economists believe a virus-induced second shutdown of our economy would be catastrophic. Moreover, our current government is a minority one and the virus has already dictated a series of unprecedented financial measures. I do not share your confidence that either our Navy or our major shipbuilders are simply expecting that the pandemic has changed nothing for them or the CSC project. Moreover, when confronted with ‘normal’ budget constraints, Canadian governments have in the past cancelled warship programs (the General Purpose Frigate in the 1960s) or have reduced capabilities (the Canadian Patrol Frigate in the 1980s).
7. Finally, I am more than slightly bemused that you should recommend against speculation about the future when you authored a vigorous defence of the many alleged virtues of the Type-26 frigate in the pages of the Canadian Naval Review (Vol.14, No. 1 Summer 2018). Given that the Type-26 was still very much a ’paper ship’ at that time, your article certainly was speculation in the grand style!
In any event, speculation about the past, present, and future is, I would hope, fair game for those interested in this Discussion Forum.
Hi Procrustes. I believe you are absolutely correct in that the PBO’s Fall CSC cost update will indicate a cost increase due to inflation of over $70B CAD. A lot of money to be sure, but don’t forget we are trying to re-build the RCN for the next 30-40 years with a vessel that must take on an ASW, AAW and ASuW role, all with one class of ship. Not an easy feat to do and yes, costly. But with all the weapons/missile systems and sensors, ammunition and a Combat system integrated with all, not to mention the training of sailors, and infrastructure costs, it adds up quickly for 15 CSC frigates. It’s good to be skeptical but try to keep an open mind. We will know sometime next year what the final design for the LM CSC Type 26 will be. Most assuredly there will have to be some give and take on both sides but hopefully we will have a design that the government and navy can live with. The numbers of frigates has already been decided by the government; COVID-19 be dammed! I don’t believe you can compare the Type 31 with the CSC frigate. It’s like comparing apples to oranges. The Italian FREMM class frigate (ASW or GP) is certainly comparable with the CSC frigate however the CSC frigate is a much superior ASW platform. Besides, the government has already rejected that option once before. I have closely read PBOs IR050 request and DNDs response with great interest. I would give a million dollars to find out the content of DNDs TAB 1-6 Documents especially TAB-5, however we all know that those contents are classified for various reasons until the design phase is completed. If you are suggesting that if we procure a smaller, less capable and go for quantity before quality with less crew Navy, I don’t buy that for a second. DNDs response letter has some great considerations WRT specific mission sets and unique capabilities. They indicate that to completely change the platform and design at this stage of the game with potential significant costs including contract termination costs, legal support costs additional requirement reconciliation costs and costs involved with project delays with potential job loses at Canadian shipyards could negatively impact the broader National Shipbuilding Strategy and scheduled timelines (read to start completely over would be devastating to the RCN!)
I just came across this brief article about the German Navy’s latest Batch 2, K130 Corvette, F-267 Karlsruhe. In light of recent discussion here on the topic of smaller warships, I thought it might be of interest.
https://www.navalnews.com/naval-news/2020/08/first-steel-cut-for-german-navys-third-k130-batch-2-corvette-karlsruhe/
According to the Wikipedia entry for this ship class, the ships in the Braunschweig-class corvette feature the following characteristics:
– Cost: 400 million Euros per ship (about $620 million Canadian)
– Displacement: 1,840 tonnes
– length: 89.12 m
– beam: 13.28 m
– speed: 26 knots
– range: 4,000 nmi at 15 knots
– crew: 65
– armament: 1 x OTO Melara 76 mm gun; 4 x RBS-15 Mk.3 anti-ship missiles; 2 x RAM Block II launcher with 21 missiles each as a close-in weapon system; 2 mine racks of 34 Mk.12 naval mines
– aircraft: helicopter pad and hanger for two Camcopter S-100 helicopters
Hi Dan! Nice try with the German K130 Batch 2 Corvette, but IMO it can’t compare even with our Halifax class ASW frigates we have today let alone the CSC frigate. Good looking ship, but does not have the range, sensors or speed required of a true ASW platform.
David, I contributed the article on the German K130 Batch 2 corvette because this vessel seems to fall in the mid-range of smaller, cheaper warships in service today. In no way can this German warship even begin to compare with the performance capabilities of a modern frigate that the Type-26 will surely feature. I cannot imagine this government selecting any sort of cheap-and-small option without a major reversal of Canada’s traditional defence and foreign policy priorities.
However, if pressed to predict what the Trudeau Cabinet might choose to do with the CSC file in the current economic climate, I would guess that it might decide to follow the course it opted for with the CF-18 fighter replacement program. Namely, delay and then delay yet some more. Ottawa might choose this option in the hope that this buys time for the economy to begin a more solid recovery post-pandemic, and with that the government’s revenues may increase to the point that the CSC begins to look more affordable.
Two problems with this: first, the further delays would cause the fighter and frigate replacement programs to overlap even more, meaning two political headaches instead of just one; secondly, folks far wiser than me say the more delays simply drive up the overall costs of the CSC program. In either case, the cabinet’s fiscal and political difficulties do not simply disappear.
I gather that you flatly reject the possibility that the government might depart from its previous decisions on the CSC, but I would be interested in your views on what Ottawa might ultimately choose to do if it is compelled to reduce the funding significantly for the CSC program as a whole.
Hello again Dan! Buying off-the-shelf, cheap and small is seldom cheap or small ($$). Our defence and foreign policies seem to be developed around the CSC Frigate program. Your argument that delaying the CSC project to buy time for the Canadian economy to begin a more “solid recovery” post pandemic, certainly has merit and would be the prudent thing to do. However this project has already been delayed far too long and any further delays would put the CSC Frigate program in real jeopardy of being cut entirely (perhaps this is what the Government really wants — remember the Avro Arrow?). That would not be good for all Canadians, especially the RCN. The Parliamentary Budget Office’s (PBOs) Fall report 2020 will undoubtedly give concern. I believe the government is caught between ‘a rock and a hard place,’ between a COVID-19 pandemic that has financially crippled the budget that will take our children’s, children, children generations to pay off and the CSC Frigate project that has been ‘blown out of the water’ with projected cost estimates. The one thing we cannot do is reduce the number of CSC Frigates as they are already at their bare minimum for the RCN to carry out all missions required of them.
So….what to do? In my opinion, the government should quickly carry on with the CSC program unchanged. We already seem to be doing that with the pandemic with, it seems, no problems from the government. I believe the Canadian economy is strong enough to quickly bounce back from both problems. It will just take a bit longer to get there. A bitter pill to swallow, yes, but the CSC Frigates are far too important for Canada, the RCN and our economy not to do this in my opinion.