Canada’s growing corporate welfare shipbuilding problem

Shipbuilding memo shows more delays, cost overruns

By Terry Milewski
CBC News: March 7, 2014

An internal government memo obtained by CBC News shows that all four parts of the government’s huge shipbuilding program are either over budget, behind schedule, or both.

Written Oct. 7 last year by the deputy minister of national defence, Richard Fadden, the memo shows that three of those four programs also face “major challenges” of a technical nature, as well as difficulties lining up skilled manpower to get the ships built at all.

The memo, released to the CBC following an Access to Information request, leaves little doubt that Canada’s crippled supply ship, HMCS Protecteur, won’t be replaced before the year 2020.

The spectacle of the 46-year-old Protecteur, Canada’s only supply ship in the Pacific, being towed into Honolulu after an engine-room fire has thrown the lack of a replacement into sharp focus. Although there’s a plan to build two new supply ships, there’s no sign the work will even begin until late 2016. That means a new one won’t enter service until the end of the decade.
Yellow alert

The Fadden memo was intended to assure Defence Minister Rob Nicholson that there are “many success stories” in the procurement saga that has dogged the government for years.

But the attached details show no major program without problems.

A chart summarizing the state of the shipbuilding effort uses green and yellow squares to indicate where those problems are — the green meaning, on track, and yellow meaning, trouble — and there’s a lot of yellow.

For the Joint Support Ships — that’s the pair of supply ships — the chart shows trouble with both the schedule and the price. The memo explains that this means the program is up to 20 per cent behind schedule and up to 10 per cent over budget.

For the Arctic Patrol Ships, the chart shows yellow for three measures: the cost, “HR” — meaning Human Resources, or skilled workers — and technical issues. The memo describes these as “major challenges in finding solutions; significant scope changes may be required.” That suggests the ships may need to be redesigned in order to fix the technical problems.

All of those same issues — cost, manpower and technical — also dog the plan to upgrade Canada’s Halifax-class frigates.

But for the biggest program of all — the $38-billion project to build 15 new warships known as “Surface Combatants” — there is trouble cited on four measures: the schedule, the technical and manpower issues and the procurement strategy itself. It doesn’t say how any of those can be fixed, but it does say they are fixable.

In response to a request for comment, Defence Minister Rob Nicholson’s office said in a statement the auditor general had concluded the acquisition of the ships was being managed “in a timely and affordable manner that will support the shipbuilding industry for years to come.”
$100B may not be enough

The cost of the government shipbuilding strategy was already known to be enormous: roughly $105 billion to build and operate all the ships over their expected lifetimes. The capital cost of the two supply ships is officially estimated at $2.6 billion for the pair — although the Parliamentary Budget Officer said a year ago that it would really be over $4 billion. The government also plans to spend $3.2 billion on an unknown number of Arctic Patrol Ships — but experts doubt it will get more than half of the “6-to-8” ships that were promised.

Fadden’s memo, however, does not make any judgment on the amount of money budgeted — only whether the project is staying within it or not. That leaves unasked the question of whether the budget is too high or too low for the task at hand.

Take the supply ships. “Yellow” suggests they’re over budget, but doesn’t indicate what the budget should be. But comparisons with Canada’s allies could raise eyebrows even further.
Five times the price … for smaller ships

Britain, for example, opted to build its four new naval supply ships much more cheaply, at the Daewoo shipyard in South Korea. The contract is for roughly $1.1 billion Cdn. That’s for all four. By contrast, Canada plans to build just two ships, in Vancouver, for $1.3 billion each. So Canada’s ships will be roughly five times more costly than the British ones.

But there’s a twist. Canada’s supply ships will also carry less fuel and other supplies, because they’ll be smaller — about 20,000 tonnes. The U.K. ships are nearly twice as big — 37,000 tonnes. Canadians will lay out a lot more cash for a lot less ship.

(Read the full article at: CBC)

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