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Canada's Navy Is a Sinking Ship

The government's budgeting problems will force the Navy to choose between acquiring either fewer ships, or ships that are significantly less capable than they need. The fact that Canada's Chief of Defence Staff does not know the government's plan is proof there is not one.

Canada's Auditor General's, Michael Ferguson, has painted a grim picture of how the Conservative government is mismanaging its National Shipbuilding Procurement Strategy (NSPS). The Auditor General pulled no punches when criticizing the Government's budget estimates to replace our aging fleet of Navy ships, calling the numbers "inadequate," "insufficient," "very imprecise" and "at most, placeholders." This is a resounding condemnation of the government's ability to manage what will be the largest procurement project in Canadian history, costing at least $50 billion over 30 years.

Several of Canada's naval vessels have been in service for more than 40 years, making them older than most of the sailors aboard them. So in 2008, the government announced a NSPS to replace over 50 large ships and 115 smaller ships for both the Royal Canadian Navy and the Canadian Coast Guard.

Almost immediately, though, industry experts began to question the budget estimates contained in the strategy. Today, the Auditor General revealed clearly that these experts were correct: budgets in the NSPS were set "early in the options analysis phase" and were "based on rough estimates." As the Auditor General put it, the budgets "have not been revised for the changes in the cost of materials and labour since the projects were first approved."

Worse, "these rough estimates have been treated as budget caps," meaning that "the Department has had to reduce the expected number of military ships or their capabilities to remain within budget." For example, "the budget of $26.2 billion [to replace Canada's 3 destroyers and 13 frigates] is sufficient to build only a lesser number of ships when considering the effects of inflation and other cost increases." The AG also noted that the budgets estimated for Arctic Patrol Ships (AOPS) have not been updated since 2007, and the estimates to replace Canada's Surface Combatants have not been updated since the initial budget was established in 2008.

All of which means that "Canada may not get the military ships it needs." The government's budgeting problems will force the Navy to choose between acquiring either fewer ships, or ships that are significantly less capable than they need. Despite what the Navy asked for, Canada is likely to see two, not three, Joint Support Ships; one, not two, Polar Icebreakers; and six, not eight, Arctic Patrol Ships. According to the Auditor General, "National Defence has already made cost/capability trade-offs on the AOPS and the Joint Support Ships projects." These trade-offs will limit the type of missions our navy can undertake, reduce the amount of time our ships can be deployed at sea, and could ultimately put lives at risk.

For example, the statement of requirements for the new JSS has been downgraded to call for less than half of the fuel cargo of the replenishment ships it will replace. Also, the JSS will no longer have dedicated space for Army vehicles, nor will it be able to carry landing to get them ashore quickly.

These requirements were removed not because the Navy no longer needed them, but because the government's budgeting errors made them unaffordable. Also, as the Auditor General noted, "Departmental documents indicate that by acquiring fewer than three (JSS) ships, Canada's ability to respond autonomously to crises and contingency operations will be significantly diminished."

So how many ships will the NSPS produce? Even Canada's Chief of Defence Staff, General Tom Lawson, said last week that he looks "forward to seeing what number of ships" will be built. The fact that he does not know the government's plan is proof there is not one.

The Auditor General also noted that the government has not built in appropriate measures to ensure the NSPS will deliver ships on time and on budget. The NSPS also "does not include a provision for the regular monitoring of the expected additional costs or the benefit to Canada." Such measures are essential for ensuring that Canadians get the best value for our investment.

Additionally, the Auditor General pointed to a lack of clarity and precision in the NSPS selection process, which ended up costing taxpayers an additional $500 million. This is because, initially, bidding shipyards were asked to identify what, if any, portion of the costs of upgrading their shipyard infrastructures they would be asking the government to reimburse.

All of the winning shipyards indicated they would upgrade their facilities at "$0 net cost to Canada" and they would "assume all the risks associated with the financing of shipyard upgrades." However, shortly after the deal was signed, both shipyards raised concerns they would be shouldering this burden without a guarantee that the federal government would build as many ships as promised. So the government agreed to guarantee $500 million -- $300 to Irving Shipbuilding and $200 million to Vancouver Shipyards -- to defray their infrastructure upgrades.

The Auditor General has warned that the federal government could be on the hook for extra cost if it doesn't order the number of ships it promised. Also, there is nothing in the agreement that would limit the shipyards from asking for further increases.

Unfortunately, the Auditor General's conclusions are not surprising. The Conservative government is developing a reputation -- both in Canada and abroad -- for presiding over deeply flawed procurement processes that come in over budget, behind schedule, and do not meet the needs of the Canadian Armed Forces. The F-35 fiasco -- where budget estimates increased from $9 billion to $15 billion to upwards of $45 billion -- is but one prominent example.

Perhaps most disturbing of all was the Auditor General's revelation that information about cost increases and cost/capability trade-offs on the NSPS "is presented verbally to Treasury Board ministers annually for major capital projects; however, we were not provided with any documentary evidence to support this statement." As a former B.C. Cabinet Minister responsible for major services procurement contracts, I was shocked--as I'm sure most Canadians are -- to learn that Conservative ministers make billion-dollar decisions without documentation.

The NSPS will cost Canadian taxpayers billions of dollars and could provide thousands of jobs. Canadians have every right to demand better answers from their government. It is time the government come clean with Canadians: either reveal the true costs of the NSPS, or admit that they plan to build a smaller, less capable Navy.

Joyce Murray is the National Defence Critic for the Liberal Party of Canada and Member of Parliament from Vancouver Quadra.

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